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Full text of "Report of the Auditor General to the House of Commons (for the fiscal year ended 31 March 1965)"

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CANADA 



REPORT OF THE AUDITOR GENERAL 



TO THE HOUSE OF COMMONS 



for the 



FISCAL YEAR ENDED MARCH 31 



1965 





CANADA 



REPORT OF THE AUDITOR GENERAL 
TO THE HOUSE OF COMMONS 

for the 
FISCAL YEAR ENDED MARCH 31 

1965 



© Crown Copyrights reserved 

Available by mail from the Queen's Printer, Ottawa, 
and at the following Canadian Government bookshops : 

OTTAWA 

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TORONTO 

Mackenzie Building, 36 Adelaide St. East 

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or through your bookseller 

A deposit copy of this publication is also available 
for reference in public libraries across Canada 

Price 75 cents Catalogue No. FA1-1965 

Price subject to change without notice 



Roger Duhamel, f.r.s.c. 

Queen's Printer and Controller of Stationery 

Ottawa, Canada 

1966 




10 51614 



TABLE OF CONTENTS 



Paragraph Page 



Introduction 

Standing Committee on Public Accounts 

Summary of Employees Authorized for the Public Service . . . 

Scope of the Audit 

Findings of Royal Commission on Government Organization . 

Internal Control 

Form and Content of the Estimates 

Form and Content of the Public Accounts 

Office of the Auditor General 





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Summary of Expenditure and Revenue 

Expenditure 

Agriculture 

Atomic Energy 

Canadian Broadcasting Corporation 

Citizenship and Immigration 

External Affairs 

Finance 

Forestry 

Justice 

Labour 

Mines and Technical Surveys , 

National Defence 

National Health and Welfare 

National Research Council 

National Revenue 

Northern Affairs and National Resources . 

Post Office 

Public Works 

Royal Canadian Mounted Police 

Trade and Commerce 

Transport 

Veterans Affairs 

Other departments 



Revenue . 



Income taxes 

Sales tax 

Other excise taxes 

Excise duties 

Return on investments . 






Net postal revenue 

Other non-tax revenues. 



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iii 



Paragraph Page 



Comments on Expenditure and Revenue Transactions 

Revised vote pattern 

Prairie Farm Emergency Fund 

Loss arising from delay in acceptance of offer to purchase land . . 

Loss on advances for construction of potato warehouses 

Effect of change in method of financing capital expenditures of the 

Canadian Broadcasting Corporation 

Salaries and wages paid for work not performed 

Financing of the 1967 World Exhibition 

Questionable charges to Vote 15 of the Department of Citizenship 

and Immigration 

Disposal of surplus plant 

Defence Production Revolving Fund 

Department of External Affairs missions abroad 

Indirect compensation to chartered banks 

Special Government contributions to superannuation accounts. . . . 
Errors in Public Service Superannuation Account pension and con 

tribution calculations 

Extra-statutory death benefit and pension payments 

Subsidization of Fishermen's Indemnity Plan 

Free accommodation for international commission without parlia- 
mentary sanction 

Questionable charge to Vote 1 of the Department of Industry . . 

Federal losses from bankruptcies , 

Living allowances to federally-appointed judges 

Municipal winter works incentive program 

Electronic data processing system abandoned 

National Defence administrative regulations and practices 

Questionable charge to Vote 15 of the Department of National 

Defence 

Bobcat Program for development of army vehicles 

Additional cost resulting from failure to exercise option to renew 

agreement for the supply of natural gas 

Bomb Toss Computer 

Excessive payments to municipal school board 

Cancellation of Canada-United States radar site construction pro 

gram 

Additional cost of constructing runway and access taxiways at 

R.C.A.F. Station, Chatham, N.B 

Cost of terminating an agreement and lease of married quarters, 

R.C.A.F. Station, Grostenquin, France 

Cost of terminating leased communication facilities 

Electrical relays found unsuitable 

Pension awards effective at early age 

Discretionary awards of Service pensions 

Questionable period of service included when determining pension 

benefit 86 

Unemployment Assistance 87 

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Paragraph Page 



Provincial payments to federal hospitals under the Hospital Insur- 
ance and Diagnostic Services Act 88 57 

Grant to International Society of Soil Mechanics and Foundation 

Engineering 89 57 

Departmental practices which lack statutory sanction 90 58 

Settlement of sales tax on percentage of total sales 91 59 

Refund of sales tax on materials used in construction of certain 

buildings 92 60 

Crown-owned houses located at Coutts, Alberta, declared surplus to 

requirements 93 60 

Drawback paid on goods destroyed after release from Customs 94 60 

Commissions for issue of provincial hunting and fishing licences and 

permits 95 61 

Customs and Excise laboratory 96 61 

Part-time Customs and Excise Enforcement Officer 97 61 

Sight entries 98 62 

Bonded warehouses 99 63 

Possible loss of excise tax 100 63 

Charitable donations 101 64 

Remission of income tax on per diem allowances 102 65 

Inadequate accounting and financial control procedures, Fort Smith, 

N.W.T 103 65 

Inadequate control of stores at northern locations 104 67 

Second class mail 105 68 

Second class mail — free mailing privileges 106 68 

City transportation services 107 69 

Postage stamps destroyed 108 69 

Write-off of obsolete stores 109 70 

Charges for Post Office lock boxes and bag service 110 70 

Post Office Savings Bank Ill 71 

Construction of headquarters building, Department of National 

Health and Welfare 112 71 

Cost of construction of the National Gallery 113 72 

Cost of revised and abandoned plans for buildings in Ottawa 114 72 

Cost of abandoned plans for headquarters building, Department of 

Transport 115 73 

Cost of modifying heating plant in new building, Toronto 116 73 

Relationship of site cost to building cost, Woodstock, Ont 117 74 

Cost of little-used railway spur line, Pointe-au-Pcre, Que 118 74 

Failure to provide for subsidy review 119 75 

Cost of activating water supply system, Churchill, Man 120 76 

Additional costs due to inaccurate specifications 121 77 

Continuing federal assistance to intra-provincial ferry services 122 77 

Contribution due for ice control structure, Montreal 123 78 

Funds not accounted for by former officers 124 78 

Excess cost of Seaway property 125 79 

Deficits on inspection services 126 80 

Claims resulting from completion of air terminal building ahead of 

schedule 127 81 



Paragraph Page 



Cost of re-roofing air terminal building, Gander, Nfld 128 82 

Cost of salvaging sunken vessel 129 82 

Cost of abandoned design plans for ferry vessel 130 83 

Purchase and conversion of ferry vessel 131 83 

Cost of faulty planning in ferry design 132 84 

Cost of changing vessel design 133 85 

Cost of altering vessel design plans 134 85 

Cost of "dead-freight" 135 86 

Subsidizing of intra-provincial ferry service 136 86 

Subsidy for the construction of a floating fish processing plant, 

Liverpool, N.S 137 87 

Awards under the Pension Act 138 87 

War veterans allowances 139 89 

Unpaid accounts carried forward to new fiscal year 140 90 

Losses reported in the Public Accounts 141 91 

Non-productive payments 142 91 

Summary of Assets and Liabilities 96 

Assets 97 

Current assets 145 97 

Advances to the Exchange Fund Account 146 98 

Investment in special United States of America securities — Columbia 

River Treaty 147 98 

Sinking fund and other investments held for retirement of unmatured 

debt 148 98 

Loans to and investments in Crown corporations 149 99 

Loans to national governments 150 100 

Other loans and investments 151 101 

Securities held in trust 152 102 

Deferred charges 153 103 

Suspense accounts 154 103 

Inactive loans and investments 155 104 

Liabilities 104 

Current and demand liabilities 157 104 

Deposit and trust accounts 158 105 

Annuity, insurance and pension accounts 159 106 

Undisbursed balances of appropriations to special accounts 160 108 

Deferred credits 161 109 

Suspense accounts 162 110 

Unmatured debt 163 110 : 

Net Debt 164 111 

Contingent Liabilities 165 111 

Comments on Assets and Liabilities 112 

Accounts receivable 168 113 

Accounts receivable — Department of National Revenue 169 115 

Cash on deposit in chartered banks 170 118 

Agricultural Commodities Stabilization Account 171 118 

vi 



f 



Paragraph Page 



Sinking fund and other investments held for retirement of unmatured 

debt 172 118 

Deferred charges — Unamortized portions of actuarial deficiencies. . . 173 118 

Suspense accounts 174 119 

Public Service Superannuation Account 175 119 

Canadian Forces Superannuation Account 176 119 

Royal Canadian Mounted Police Superannuation Account 177 119 

Crown Corporations 119 

Atomic Energy of Canada Limited 185 122 

Canadian Arsenals Limited 186 124 

Canadian Broadcasting Corporation 187 125 

Canadian Commercial Corporation 188 130 

Canadian Corporation for the 1967 World Exhibition 189 131 

Canadian National (West Indies) Steamships, Limited 190 137 

Canadian Overseas Telecommunication Corporation 191 137 

Canadian Patents and Development Limited 192 139 

Centennial Commission 193 140 

Cornwall International Bridge Company Limited 194 141 

Crown Assets Disposal Corporation 195 141 

Defence Construction (1951) Limited 196 143 

Eldorado Aviation Limited 197 144 

Eldorado Mining and Refining Limited 198 145 

Export Credits Insurance Corporation 199 147 

Farm Credit Corporation 200 149 

The National Battlefields Commission 201 151 

National Capital Commission 202 152 

National Harbours Board 203 155 

Northern Canada Power Commission 204 158 

Northern Ontario Pipe Line Crown Corporation 205 160 

Northern Transportation Company Limited 206 160 

Park Steamship Company Limited 207 162 

Polymer Corporation Limited and subsidiary companies 208 162 

The St. Lawrence Seaway Authority 209 163 

The Seaway International Bridge Corporation, Ltd 210 170 

Departmental Operating Activities 171 

Agricultural Products Board 212 172 

Agricultural Stabilization Board 213 173 

Airport operations 214 175 

Board of Grain Commissioners for Canada 215 176 

Canadian Government Elevators 216 177 

National Film Board 217 178 

Post Office activities 218 180 

Public Printing and Stationery activities 219 181 

Queen's Printer — publishing activities 220 185 

Royal Canadian Mint 221 187 

vii 



Paragraph Page 



Special Audits and Examinations 188 

The Army Benevolent Fund Board 223 188 

Atlantic Development Board 224 189 

The Canada Council 225 190 

The Custodian 226 193 

Economic Council of Canada 227 194 

Exchange Fund Account 228 195 

Municipal Development and Loan Board 229 197 

National Gallery of Canada 230 198 

Public Printing and Stationery stores 231 199 

The Queen Elizabeth II Canadian Fund to Aid in Research on the 

Diseases of Children 232 199 

Roosevelt Campobello International Park Commission 233 200 

Royal Canadian Mint stocks 234 201 

Unemployment Insurance Fund 235 201 

Yukon Territorial Government 236 204 



Appendices 

1. Recommendations and Observations by the Standing Committee on Public Accounts 

not yet implemented or dealt with by Executive action 208 

2. Summary of Employees of the Public Service, by Departments, Crown Corporations 

and Other Instrumentalities authorized and on strength as at March 31, 1965 
(with comparative figures as at March 31, 1964) 218 

3. Summary of Expenditure by Standard Objects for the fiscal year ended March 31, 1965 

(with comparative figures for the preceding fiscal year) 226 



Exhibits 

(as published in the Public Accounts) 

Statement of Expenditure and Revenue for the fiscal year ended March 31, 1965 (with 

comparative figures for the preceding fiscal year) 228 

Statement of Assets and Liabilities as at March 31, 1965 (with comparative figures as 

at March 31, 1964) 230 

Summary of Appropriations, Expenditures and Unexpended Balances by Departments 

for the fiscal year ended March 31, 1965 232 

Summary of Revenue by Main Classifications and Departments for the fiscal year 

ended March 31, 1965 233 






viii 



T 



HE functions and responsibilities of the Auditor General of Canada are outlined 
in Part VII of the Financial Administration Act, R.S., c. 116. 



2. In accordance with the requirement of section 70 of the Act, a Report is now made 
to the House of Commons on the results of the audit examinations for the year ended 
March 31, 1965. Subsection (1) of the section reads: 

The Auditor General shall report annually to the House of Commons the results of his 
examinations and shall call attention to every case in which he has observed that 

(a) any officer or employee has wilfully or negligently omitted to collect or receive any 

money belonging to Canada, 
(6) any public money was not duly accounted for and paid into the Consolidated 

Revenue Fund, 

(c) any appropriation was exceeded or was applied to a purpose or in a manner not 
authorized by Parliament, 

(d) an expenditure was not authorized or was not properly vouched or certified, 

(e) there has been a deficiency or loss through the fraud, default or mistake of any 
person, or 

(/) a special warrant authorized the payment of any money, 
and to any other case that the Auditor General considers should be brought to the notice 
of the House of Commons. 

3. The Statement of Expenditure and Revenue for the fiscal year ended March 31, 
1965 and the Statement of Assets and Liabilities as at that date, prepared by the Depart- 
ment of Finance for inclusion in the Public Accounts, have been examined and certified 
by me as required by section 69 of the Financial Administration Act, subject to my 
comments in this Report. Copies of these financial statements are appended as Exhibits 1 
and 2. The Summary of Appropriations, Expenditures and Unexpended Balances by 
Departments and the Summary of Revenue by Main Classifications and Departments, 
both as included in the 1965 Public Accounts, have also been examined and certified and 
copies are appended as Exhibits 3 and 4. 

Standing Committee on Public Accounts 

4. In my Report to the House of Commons for the year ended March 31, 1964 which 
was tabled on February 16, 1965, I was pleased to state that this was the first time in 
recent years that the Public Accounts Committee completed its examination of the Auditor 
General's Report to the House of Commons before a succeeding report had been tabled. 

The Committee last met on March 15, 1965 when it approved its Ninth Report 1965 
to the House on the Form and Content of the Public Accounts. No meetings have been 
held by the Committee since nor has my 1964 Report been referred by the House to the 
Committee for study. 

A summarized listing was given a year ago detailing the fifty recommendations and 
observations made by the Committee which had not been implemented or otherwise dealt 



2 AUDITOR GENERAL'S REPORT 

with by Executive action at that time. Since then, action has been taken by the Executive 
on ten of these recommendations, details of which will be laid before the Committee when 
it next convenes. The remaining forty recommendations and observations not yet im- 
plemented are again listed in Appendix 1 of this Report. 

The ten recommendations on which action has been taken dealt with the following 
matters: 

Fourth Report 1964 
Advertising costs 
Educational leave costs 
Payment of maintenance expenses of Civil Service Recreational Association Centre 

Fifth Report 1964 — Canadian Broadcasting Corporation 
Annual report 
Statement of Operations 
Size of operating and capital requirements 
Authority of Comptroller over Regional Accountants 

Sixth Report 1964 

Lease termination payments 
Superannuation Accounts 

Eighth Report 1964 

Employment of part-time doctors by Department of Veterans Affairs 

In addition, there was partial implementation of the Committee's recommendations 
respecting the form and content of the Estimates (Fourth Report 1964), accounts receivable 
(Sixth Report 1964), surplus assets disposal (Seventh Report 1964) and amendments to 
the Customs Act and the Excise Tax Act (Eighth Report 1964). Details will be found in 
paragraphs 9, 168, 195 and 90 of this Report. 

Summary of Employees Authorized for the Public Service 

5. Appendix 3 shows that the two largest items of expenditure continue to be interest 
on the public debt totalling $1,051 million and civil salaries and wages amounting to 
$952 million, which together represent almost 28% of the total budgetary expenditure for 
the year. The public debt charge is the subject of a detailed appendix in the Public Accounts. 
With respect to civil salaries and wages, this Report again contains a summarized list 
(Appendix 2) showing the number of employees authorized and on strength in the public 
service by departments, Crown corporations and other instrumentalities at March 31, 1965 
compared with the number at the close of the preceding year. 

It will be noted from Appendix 2 that only 6 out of the 35 departments shown reported 
a reduction in the number of employees on strength at March 31, 1965 compared with the 
situation at the close of the preceding year. The strength of one small department remained 
unchanged. On the other hand, the remaining 28 departments reported staff increases at 
March 31, 1965 over March 31, 1964 of 7,228 employees or 6%. 



AUDITOR GENERAL'S REPORT 3 

Scope of the Audit 

6. Examinations of the departmental accounts for the year ended March 31, 1965 
were made in conformity with section 67 of the Financial Administration Act which reads : 

The Auditor General shall examine in such manner as he may deem necessary the ac- 
counts relating to the Consolidated Revenue Fund and to public property and shall 
ascertain whether in his opinion 

(a) the accounts have been faithfully and properly kept, 

(b) all public money has been fully accounted for, and the rules and procedures applied 
are sufficient to secure an effective check on the assessment, collection and proper 
allocation of the revenue, 

(c) money has been expended for the purposes for which it was appropriated by 
Parliament, and the expenditures have been made as authorized, and 

(d) essential records are maintained and the rules and procedures applied are sufficient 
to safeguard and control public property. 

In my Report last year I mentioned the extent to which staff recruitment difficulties 
had continued to handicap the work of the Audit Office but expressed the hope that it 
would be possible to increase the scope of the work before March 31, 1965 and to see the 
full effect of this improvement in the fiscal year 1965-66. 

Although the working strength of the Audit Office is still short of the establishment 
approved with effect from October 1, 1964, the Office has managed to increase and diversify 
the scope of its work during the past year. The extent to which this can be developed 
further will depend on the success that can be achieved in filling the establishment vacan- 
cies over the next few months. 

Our examinations continued to include a general review of accounting procedures 
and systems of internal control together with such tests of the accounting records and 
other supporting evidence as we considered necessary in the circumstances. 

The attention of responsible administrative and accounting officers was directed to 
transactions which, in the Audit Office view, were not in harmony with annual parlia- 
mentary appropriations or continuing statutory financial directions, or which lacked con- 
formity with Executive orders or regulations. 

Our examinations extended to all departments, Crown corporations and other agencies 
of the Government of Canada, excepting those corporations and other instrumentalities 
listed in paragraph 183 whose accounts were subject to examination by other auditors. 

The accounts relating to the receipts and disbursements of the Office of the Auditor 
General were examined by an officer of the public service nominated for the purpose by 
the Treasury Board, as required by section 75 of the Financial Administration Act. In this 
connection, the Public Accounts Committee, in its Eighth Report 1964 (see Appendix 1, 
item 40) has recommended that this section of the Act be amended to provide that the 
receipts and disbursements of the Office of the Auditor General be examined by a qualified 
person nominated by Parliament through its Standing Committee on Public Accounts, and 
that such person should report thereon to the House of Commons. 

During the course of their work, members of the staff of the Audit Office were given 
full access to all vouchers, records and files of the various departments, Crown corporations 



4 AUDITOR GENERAL'S REPORT 

and other agencies. In addition, they were readily provided with all supplementary in- 
formation and explanations required. I should like to express my appreciation for the 
co-operation thus extended by departmental and treasury officers and by the administra- 
tive and accounting officers of Crown corporations and other agencies. 

The Audit Office has continued to follow its practice of addressing detailed reports 
to the executive boards of Crown corporations and other agencies covering the results of 
its examinations during the year. These reports give a broad summary of the results of 
operations for the financial year in comparison with previous years, and make comments 
and offer suggestions regarding weaknesses in internal control and other matters noted 
during the course of the audit. Matters dealt with in these reports that are considered to 
be of interest to the House of Commons are referred to in the relevant sections of this 
Report. 

Findings of Royal Commission on Government Organization 

7. In my 1963 Report to the House I outlined my concept of the responsibilities of 
the Auditor General to Parliament with regard to those findings of the Royal Commission 
on Government Organization (1960 to 1963) relating to outdated procedures, uneconomical 
operations and wasteful practices. I stated that to the extent its reports correctly indicated 
where and how savings of public funds could be made, I believe the Auditor General has 
a responsibility to Parliament to follow through and ascertain what action has been or 
will be taken toward achieving such savings. In its Fourth Report 1964 the Standing Com- 
mittee on Public Accounts expressed the opinion that this concept of the responsibilities 
of the Auditor General is in accord with the intent and wishes of Parliament. 

It is important first to distinguish between a finding of this Royal Commission and 
a recommendation. A finding is an observation or critical comment made in the reports 
on a specific situation or condition existing in the public service as distinct from a recom- 
mendation which, in the Commission's view, is calculated to remedy one or more individual 
finding. Throughout the reports there are an estimated 276 specifically worded recommen- 
dations. On November 5, 1963 the Government approved 68 of these recommendations 
and on February 9, 1965 approved 32 more, leaving 176 yet to be dealt with. 

We have made a study in depth of each of the 24 reports of the Royal Commission. 
Excluding Report 19 dealing with the Canadian Broadcasting Corporation to which we 
refer in paragraph 187, our study disclosed over one thousand individual findings. The 
majority of these related to policy or organizational practices where, for example, more 
efficient results might be achieved by rearrangement of the existing procedures or organiza- 
tion without necessarily saving public funds. The remainder — approximately 450 findings — 
dealt with specific situations or conditions involving outdated procedures, uneconomical 
operations and wasteful practices, elimination or remedy of which would not only improve 
efficiency but could result in substantial savings of public funds. Each of these individual 
findings has been followed through by the staff of the Audit Office to ascertain what action 
has been or will be taken toward achieving such savings. 

In order to make our enquiry as broad as possible, we selected 32 departments and 
agencies whose operations had been studied by the Royal Commission three years ago 



AUDITOR GENERAL'S REPORT 5 

and where the conditions giving rise to the 450 findings existed. The enquiry, which was 
carried out in the course of our regular audit work, involved seeking answers to over 900 
questions at the appropriate levels in the departments and agencies. The results were 
as follows : 

Condition still exists — 

No action taken 39% 

Said to be "under study" 34% 



73% 

Condition "remedied" 24% 

Disagreed with the findings 3% 

The largest single set of findings checked were those contained in Report 4, "Paper- 
work and Systems Management", 148 of which we discussed with officials of 23 depart- 
ments and agencies. The answers received conformed with the results obtained from our 
enquiries into the findings disclosed in the other reports. They demonstrated that with 
respect to a number of important findings, effective action cannot be taken at the depart- 
mental level until basic decisions are taken by top management. For example, greater 
decentralization of authority would enable the heads of departments and agencies to take 
more positive steps to correct prevailing practices and thereby effect savings without 
diminishing efficiency. We found no lack of awareness at the various departmental levels 
of the need to deal with these situations. It was explained to us, however, that few changes 
could be made without instructions from top management. It must be added here that in 
many instances top management is itself unable to issue these instructions because a 
number of the practices and procedural processes under criticism have their origin in 
statutes which only Parliament can change. 

We found this also to be largely the case with findings disclosed in Report 3 dealing 
with "Personnel Management". Our review of these findings led us to the conclusion that 
most of the conditions criticized by the Royal Commission concerning the practices of the 
Civil Service Commission do in fact continue to exist. With certain reservations, the 
Commission has indicated its agreement with this conclusion. 

The 100 recommendations selected by the Government for approval up to February 9, 
1965 included several that are proving time-consuming and costly to implement. The most 
important of these recommendations were made under the headings of Planning and Ex- 
penditure Control in Report 2 on "Financial Management" where the Royal Commission 
recommended that departmental estimates be prepared on the basis of programs of activity 
instead of by standard objects of expenditure, and that departments and agencies be given 
he necessary financial authority and be held accountable for the effective management 
f the financial resources at their disposal. 

The implementation of basic changes such as these in an organization the size of the 
government of Canada requires extensive study and specialized work at many levels to 
ensure that the changes will in fact produce the desired result. Considerable effort has been 
ind continues to be expended both by the Treasury Board staff and departmental manage- 



: 



6 AUDITOR GENERAL'S REPORT 

ments in working toward this objective. Since the Royal Commission made its recommend- 
ations nearly three years ago, over 30 special projects and studies have been carried out or 
are in process involving studies of individual departmental operations by firms of manage- 
ment consultants. The general object of these studies is not only to determine how to 
adapt the specific operations of certain departments and agencies to meet the recommend- 
ations made by the Commission, but also how to achieve the maximum in operational 
efficiency. A number of these studies, carried out jointly with senior departmental officials, 
are lajdng an excellent groundwork for improved management training and the introduc- 
tion of more modern techniques, particularly in the financial and accounting areas. The 
cost of these outside services up to the present is estimated at $1.5 million. 

The cost of the Royal Commission itself was approximately $3 million in the period 
1960 to 1963. Thus a substantial sum has already been spent in endeavouring to bring 
the government organization into line with modern standards and practices. The task is 
far from complete and obviously more expenditure will be incurred. 

It is not possible to place any figure on the total savings achieved to date through 
remedial action already taken, nor is it possible even to estimate the extent of such savings 
at this stage. Since the Royal Commission concluded its work three years ago, administra- 
tive overhead in departments and agencies has risen substantially in terms of staff needs 
and office costs. In the 1962-63 fiscal year this was to the order of $1,000 million. The 
comparable figure estimated for 1965-66 is $1,200 million, an increase of 20% over the 
three-year period. As mentioned in paragraph 5 of this Report, the staffs of 28 of the 
35 departments shown in Appendix 2 have increased in size by 7,228 employees or 6% 
during the past year. 

There is no question that it is desirable that steps be taken to improve the Estimates 
presentation to provide Parliament with better information, and to proceed with large 
organizational changes designed to improve efficiency. Nevertheless, the fact remains that 
more immediate action directed at abolishing or otherwise correcting the conditions dis- 
closed by the Commission relating to outdated procedures, uneconomical operations and 
wasteful practices that still exist could result in appreciable savings in public funds now. 

In my opinion this could be achieved if greater priority were given by top manage- 
ment to tackling these conditions. Many of the 276 recommendations of the Royal Com- 
mission were designed to remedy these conditions. Whether they will or not, it would 
clearly be of material assistance to management if the 176 recommendations still outstand- 
ing could be dealt with as quickly as possible. 

Internal Control 

8. A fundamental part of any audit is a critical review of the accounting and internal 
controls within the organization. This embraces the entire system of controls, financial and 
otherwise, established by management in order to carry out operations in an orderly and 
efficient manner, to ensure adherence to prescribed managerial policies, to safeguard the 
assets for which management is responsible, and to check as far as possible the accuracy 
and reliability of its records. 



AUDITOR GENERAL'S REPORT 7 

The reports of the Royal Commission on Government Organization and of the manage- 
ment consultants previously referred to provide the Audit Office with helpful information 
in determining the degree of reliance which can be placed on the system of internal control 
in the departments and agencies. The recent institution by the Treasury Board of a new 
series of management improvement directives to departments and agencies is also of 
material help to the Office. 

An important feature of effective internal control is the provision made for manage- 
ment to review the financial operations at regular and frequent intervals by means of 
interim reports, operating summaries and other related financial and statistical information. 
Comparison of results with those of previous periods may indicate discrepancies that call 
for further examination and, where budgetary controls are in use, attention is drawn to 
important variances on which explanations may be required. Thus managerial supervision 
and review of this nature is an essential element in any effective control. 

Since 1960 I have recommended more accurate cost determination, wider use of 
effective periodic statements and the employment of other modern techniques whereby 
departmental management could improve control over the costs for which it is responsible. 
The importance of these points was stressed by the Royal Commission on Government 
Organization in Volume 1 of its reports published on September 6, 1962, and it is particu- 
larly encouraging to note the recognition now being given to these points by top manage- 
ment. 

Internal auditing is an integral part of a department's system of management control. 
It is first and foremost a management tool to ensure good performance and therefore it 
should be carried out under the exclusive direction of senior departmental management 
if it is to function to best advantage. It is important to the external auditor in determining 
the scope of his work because where the internal auditor's work is effectively carried out, 
the amount of work to be performed by the external auditor can usually be substantially 
curtailed. Consequently, in his capacity as the external auditor, the Auditor General is 
particularly interested in the degree of management's acceptance of the findings and 
recommendations of its internal auditor and in the action taken. 

In my opinion, greater progress could be made in recognizing the importance of 
internal audit. While a number of the larger departments and Crown corporations possess 
their own staffs, a number have not yet taken steps along these lines even though the 
circumstances justify it. On the other hand, in the related field of pre-audit, staffs are 
larger and methods more elaborate than modern practice requires. 

The solution of these problems does not lie in engaging more staff but in making 
more effective use of the staffs presently engaged in internal auditing, including pre-audit 
work, coupled with a freer exchange of ideas among the various departments, Crown 
corporations and other agencies. 

Form and Content of the Estimates 

9. The Public Accounts Committee last reported on the form and content of the 
Estimates in its Fourth Report 1964, presented to the House on July 28, 1964. Its 
recommendations and observations at that time will be found in Appendix 1, item 6. 



8 AUDITOR GENERAL'S REPORT 

It will be noted that the Committee recommended adoption of the revised vote pattern 
proposed by the Treasury Board for introduction in the Main Estimates 1964-65, subject to 
certain improvements suggested by the Auditor General to the Committee at that time. 
The revised vote pattern was duly adopted in the Main Estimates 1964-65 and this made 
it possible to transfer funds between services with the Treasury Board's approval which 
would not have been possible under the former vote pattern. The vote pattern actually 
used in the Estimates differed in certain instances from the pattern which had been sub- 
mitted to and approved by the Public Accounts Committee. Details of these differences 
and examples of transfers made possible by the revised vote pattern are contained in 
paragraph 51. 

The Committee also recommended the inclusion of supporting financial information 
of Crown corporations and other public instrumentalities in the Details of Services so as 
to provide better information to the House with respect to the nature of the fiscal require- 
ments of the corporations and other agencies requiring financing by parliamentary appro- 
priations. However, this recommendation has not yet been implemented. Additional in- 
formation concerning the staffs of all government departments and Crown corporations 
has been placed in the Main Estimates, 1965-66. 

We understand that the Treasury Board, as a result of its consideration of the rec- 
ommendations of the Royal Commission on Government Organization, expects to submit 
proposals to the Public Accounts Committee in due course designed to present the Esti- 
mates of a number of departments on a program and activity basis with a view to having 
this replace the present objects of expenditure basis over a period of time. 

It should be pointed out that a change of this type in the form of the Estimates will 
not only require changes in many of the accounting procedures but will necessitate changes 
in a number of the financial statements. This will result because the form of the Estimates 
determines in large measure how the subsequent accounting for expenditure is maintained 
and reported in the Public Accounts. Both the form and the content of the Estimates are 
important to the Auditor General because of his responsibilities to Parliament. 

Form and Content of the Public Accounts 

10. Over the past several years I have recommended that consideration be given to 
summarizing or otherwise reducing the number of detailed listings included in the Public 
Accounts. I have also pointed out additional important information which should be 
disclosed. 

The form and content of the Public Accounts were reviewed by a sub-committee of 
the Public Accounts Committee in 1964 when consideration was given both to my rec- 
ommendations and to those put forward by the Comptroller of the Treasury. Following 
the sub-committee's study of the Public Accounts for 1962-63, the Public Accounts Com- 
mittee included the following in its Ninth Report 1965 presented to the House on March 15, 
1965: 



AUDITOR GENERAL'S REPORT 9 

Recommendations for Deletion 

3. Based on the above findings and observations [of the sub-committee], your Committee 
recommends that the following information be deleted from Volume II of the Public Accounts: 

Estimated 
savings 



(a) listings of salary rates and travelling expenses of employees (Sec- 

tion 38) 92 pages 

(b) listings of payments to suppliers and contractors (Section 39) 65 pages 

(c) listings of names of persons on educational leave (e.g., Section 1.4) 

(See also para. 15) 3 pages 

(d) listings of construction or acquisition of buildings, works, and land 

by area, region, etc. (e.g., Section 7.11) 12 pages 

(e) statements of assistance to gold mining companies (Section 19.15) 

on the understanding that the information continues to be 

included in the departmental report 5 pages 

(/) statement of expenditures by staff post offices for salaries, etc., 
and statement of expenditures by postal districts and services 
(Section 27.4 and 27.8) 3 pages 

(g) listings of contracts for construction or acquisition of buildings, 
etc., when the amount is less than $100,000, and for cost plus 
contracts under $ 10,000. The present listings are for amounts 
of $10,000 or over ($25,000 or over for defence contracts) and 
$5,000 or over for cost plus contracts (e.g., Sections 31.61 and 
35.34) 149 pages 

(h) distribution of expenditure by services and units of the Standards 

Branch (Section 34.7) 1 page 



330 pages 



Your Committee further recommends that listings of the travelling expenses of employ- 
ees in excess of $1,000 and of payments to suppliers and contractors in excess of $100,000 
be prepared annually for the information of the Committee. 

4. Your Committee recommends that the following detailed information be replaced by 
statements in summary form : 

Estimated 
savings 



(a) listings of professional fees by type of service, together with detailed 

listings of professional fees of $2,000 and over (e.g., Section 

1.13) 9 pages 

(b) detailed listings of the acquisition of equipment; to be replaced by 

summarized listings according to type of equipment (e.g., 

Section 1.9) 8 pages 

(c) details of expenditures for general elections and by-elections by 

electoral districts; a summary by provinces to be retained 

(Section 6.4) 12 pages 



10 AUDITOR GENERAL'S REPORT 

Estimated 
savings 

(d) listings of doctors receiving fees of $1,000 or over and hospitals 

receiving $5,000 or over; to be replaced by a summary by 

categories of service (e.g., Section 23.39) 5 pages 

(e) details of expenditures by provinces and district re any census of 

Canada; to be replaced by a summary listing by provinces 

(Section 34.9 to 34.38, 1961-62 Public Accounts) 28 pages 

(/) listing of salaries of Judges by Courts; to be replaced by a sum- 
marized statement of salary rates (Section 16.4 and Section 
16.5) 1 page 

(g) distribution of revenues and expenditures by Penitentiaries; to be 
replaced by a statement by institution showing (1) revenue 
and (2) expenditure on (a) operation and maintenance and 
(b) construction, improvements and equipment (Section 16.17) 2 pages 

65 pages 



5. Your Committee recommends that the following material be deleted from the Public 
Accounts if and when substantially similar information is published in the annual reports 
of the appropriate departments: 

Estimated 
savings 



(a) statements of payments of general health grants to provinces from 

inception (Section 23.8) 2 pages 

(b) listing of grants to agricultural fairs, exhibitions, etc. (e.g., Section 

1.19) 2 pages 

(c) details of health grants (Section 23.10 to 23.28) 19 pages 

(d) details of hospital construction grants (Section 23.30 to 23.37) .... 7 pages 

30 pages 

6. In making the foregoing recommendations regarding the deletion of information from 
the Public Accounts, your Committee understands that the information so deleted would 
continue to be retained in the accounting records maintained in the Office of the Comptroller 
of the Treasury and would ask the Minister of Finance to take the necessary steps to ensure 
that it would be available to Members of Parliament on request. 

7. Your Committee has been informed that the cost of printing a page of the Public 
Accounts is $25. The recommended deletions would eliminate approximately 400 pages from 
each of the English and French versions, with a resulting saving in printing costs alone of 
some $20,000. 

Recommendations for Rearrangement of Information 

8. Your Committee recommends that in Volume I the explanatory notes to the schedules 
to the Statement of Assets and Liabilities, which are now presented immediately following 



AUDITOR GENERAL'S REPORT 11 

the schedules to which they refer, be grouped together and printed at the end of the sche- 
dules, with appropriate reference to the schedule and item, e.g., for Item 1 of Schedule M, 
the note would be described as M-l, etc. 

Recommendations for the Inclusion of Additional Information 

9. Your committee gave consideration to the inclusion of additional important infor- 
mation in the Public Accounts along the lines suggested by this Committee and the Auditor 
General. 

10. In its Fourth Report 1964, presented to the House on July 28, 1964, in paragraphs 
30-32, this Committee requested the Auditor General to keep it informed as to the progress 
of a study being made for the purpose of having all costs of financial assistance to persons 
on educational leave assembled in one place so that Parliament might be better informed 
as to the total cost of this particular phase of the educational program designed to increase 
the capacity of public servants. Your Committee expresses the hope that this study will be 
completed shortly so that the total educational leave costs may in future be shown with 
respect to each department in Volume II of the Public Accounts, commencing with that 
for the fiscal year 1964-65. 

11. In its Sixth Report 1964, presented to the House on October 20, 1964, in paragraph 
26, the Committee recorded its agreement with the Auditor General's observation that it 
would be informative to Parliament were a summary showing the overall total of all accounts 
receivable due to the Government of Canada, whether in memorandum form or recorded on 
the books, included in the Public Accounts of Canada each year. Following consideration 
of this recommendation by the Comptroller of the Treasury, your Committee was pleased to 
be advised by the Comptroller of the Treasury that arrangements are under way for the 
inclusion of such a summary in the Public Accounts effective for the fiscal year 1964-65. 

12. Your Committee recommends that the following additional information suggested 
by the Comptroller of the Treasury be included in the Public Accounts: 

(1) In Volume II, the overall summaries of expenditures and revenues by departments 

to be published at the beginning of the volume, the totals of which would 
agree with the amounts included in the Statement of Expenditure and Revenue 
shown in Volume I. 

(2) In Volume II, for each department there be included a statement similar to that 

now presented in the Estimates, showing the approximate or estimated value 
of major services provided to the department, the cost of which is not included 
as a charge to the departmental appropriations. This statement would include : 

(a) accommodation provided by the Department of Public Works or in the de- 

partment's own buildings; 

(b) accounting and cheque issue services provided by the Comptroller of the 

Treasury ; 

(c) contributions to the Superannuation Account charged to the Department of 

Finance appropriations; 

(d) employee surgical-medical insurance premiums charged to Department of 

Finance appropriations; 

(e) employee compensation payments charged to Department of Labour appro- 

priations; and 
(/) carrying of franked mail by the Post Office Department. 

(3) A similar statement showing the services provided to other departments for which 

no reimbursement is received also to be included for each department. 



12 AUDITOR GENERAL'S REPORT 

IS. The above plan to include a statement in each departmental section showing the 
approximate or estimated value of major services provided without charge is only a pre- 
liminary step. It is understood that the ultimate aim would be to apportion these service 
costs to the relevant votes or services. 

14. Your Committee recommends that the following additional information suggested 
by the Auditor General be included in Volume II of the Public Accounts: 

(/) effective for the fiscal year 1964-65, a statement of all material declared surplus 
during the year showing, to the extent it can be determined, its original cost 
and the value obtained on disposal by Crown Assets Disposal Corporation; 
and 

{2) effective for the fiscal year 1964-65, a statement detailing the amount of losses 
incurred as a result of the accidental destruction of or damage to assets which 
would normally be covered by insurance had such coverage existed. 

15. Your Committee recognized in the course of the discussions with the Comptroller 
of the Treasury and the Auditor General that the possibility exists that the inclusion of 
further additional information in the Public Accounts might be desirable from time to time 
and endorses their suggestion that this be placed in the Public Accounts by the Comptroller 
or be brought forward by the Auditor General for discussion and consideration by this 
Committee. 

With the exception of the recommendation contained in paragraph 14 (1) above, 
all of the foregoing recommendations have been implemented by Executive action during 
the year and given effect to in the Public Accounts for 1964-65. A Treasury Board directive 
dated January 21, 1965 provides that the statement of material declared surplus, called 
for by paragraph 14 (1), will be included in the Public Accounts for the fiscal year 1965-66. 

Office of the Auditor General 

11. In last year's Report mention was made of the manner in which the required 
staff establishment of the Audit Office was assessed at 220 employees which was approved 
effective October 1, 1964. At that date actual working strength totalled 173. It was 193 
at November 30, 1965. 

The Office is thus 27 employees short of its establishment, a condition which is placing 
a heavy burden on the Office in carrying out its responsibilities. As already mentioned, the 
Office has nevertheless managed to increase and diversify the scope of its work while every 
effort is being made by the Civil Service Commission toward filling the vacant positions 
as speedily as possible. 

The Public Accounts Committee considered the circumstances surrounding this 
constant staff shortage at some length in 1962 and 1963. In its Fourth Report 1964 pre- 
sented to the House on July 28, 1964 it recorded its belief that as an officer of Parliament 
the Auditor General should be free to recruit the staff he needs in the same independent 
manner as do other officers of Parliament and the Crown corporations generally. The 
Committee, noting that amendments to the Financial Administration Act were to be 
introduced in due course, stated that it believed consideration should be given to appro- 
priate amendments designed to allow the Auditor General to appoint such officers and 
employees as are necessary for the proper conduct of his Office. This situation remains 
unchanged, no action having been taken yet towards implementing these recommendations. 



AUDITOR GENERAL'S REPORT 13 

The position of the Office was greatly strengthened by the action of the Institute of 
Chartered Accountants of Quebec in June 1964 when this Institute officially recognized 
the Office of the Auditor General of Canada in the Province of Quebec for the training 
of a number of students serving in that Province who meet the Institute's educational and 
other requirements. At the present time six students are serving in this manner in our 
Montreal office. 

This is the first time the Office of the Auditor General of Canada has been accorded 
such recognition. On behalf of the staff of the Office, I should like to record our appreciation 
of this action on the part of the Quebec Institute which should go far toward raising the 
prestige and standards of the Office now and in the years ahead. 

Recognition along similar lines is actively under consideration by the Institute of 
Chartered Accountants of Ontario. 

Summary of Expenditure and Revenue 

12. The Statement of Expenditure and Revenue for the fiscal year ended March 31, 
1965, prepared by the Department of Finance for inclusion in the Public Accounts and 
certified by the Auditor General as required by section 64 of the Financial Administration 
Act, is reproduced as Exhibit 1 to this Report. The statement shows a deficit of $38 million 
for the year. By comparison, there were deficits of $619 million in the preceding year and 
$692 million in 1962-63. 

Expenditure 

13. The Summary of Appropriations, Expenditures and Unexpended Balances by 
Departments for the fiscal year ended March 31, 1965, as published in the Public Accounts, 
is reproduced as Exhibit 3 to this Report and shows appropriations of $7,412 million, 
expenditures of $7,218 million and unexpended balances of $194 million. 

14. Of the $7,412 million of appropriations available for expenditure in the year, 
$3,052 million was provided by continuing statutory authorities and $4,305 million was 
granted by Appropriation Acts (Nos. 1, 5, 6, 8, 9, 10 of 1964 and No. 2 of 1965) while 
$55 million remained available from continuing 1963-64 appropriations (Department of 
Labour Votes 32d and 34d). 

Of the $7,218 million of expenditure during the year, $3,052 million (42%) was 
incurred under the continuing statutory authorities, with $4,166 million (58%) being 
spent under the authority of appropriations granted for the year and continuing appro- 
priations of the previous year. 

Of the $194 million of unexpended balances at the year-end, $152 million lapsed in 
compliance with section 35 of the Financial Administration Act and $42 million of Depart- 
ment of Labour Votes 6b (winter works incentive program), 8b (winter house building 
incentive program) and 5d (older worker employment and training incentive program) 
remained available for expenditure in 1965-66 because of the special wording of the 
appropriations. 



14 



AUDITOR GENERAL'S REPORT 



15. The lapsed balances of $152 million represented 3.5% of the $4,360 million of 
appropriations under Appropriation Acts. This compares with lapsed balances at the close 
of the preceding year representing 4.1% of the amounts available in that year and 2.3% 
of the amounts appropriated in 1962-63 under interim supply Appropriation Acts and by 
Governor General's special warrants. In the following cases the lapsed balances represented 
more than 10% of the appropriations under Appropriation Acts: 

Lapsed Balances 



Appropriations Amount 



% 



Emergency Measures Organization $ 10 , 296 , 000 $ 2 , 642 , 000 26 

Labour 307,297,000 46,161,000 15 

Northern Affairs and National Resources 89 , 073 , 000 13 , 192 , 000 15 

National Harbours Board 8,853,000 1,276,000 14 

16. The following table summarizes the expenditure, by departments, for the fiscal 
year 1964-65 with the corresponding amounts for the two previous years: 



Department 



1962-63 



1963-64 



1964-65 



Agriculture « 183,427,000 

Atomic Energy 63,205,000 

Canadian Broadcasting Corporation. . . 80,816,000 

Citizenship and Immigration 66,115,000 

External Affairs 85,197,000 

Finance 1,354,780,000 

Forestry 16,175,000 

Justice 37,021,000 

Labour 348,292,000 

Mines and Technical Surveys 71 , 130,000 

National Defence 1 ,571,044,000 

National Health and Welfare 1 , 122 , 448 , 000 

National Research Council, including 

Medical Research Council 40,597,000 

National Revenue 78 , 725 , 000 

Northern Affairs and National Resources 86 , 377 , 000 

Post Office 189,344,000 

Public Works 149,735,000 

Royal Canadian Mounted Police 65,424,000 

Trade and Commerce 65,768,000 

Transport 416,019,000 

Veterans Affairs 335 , 602 , 000 

Other departments 143 , 101 , 000 

$ 6,570,342,000 



225,681,000 

45,955,000 

87,576,000 

71,545,000 

97,023,000 

1,406,435,000 

41,816,000 

40,996,000 

280,384,000 

67,759,000 

1,683,471,000 

1,203,855,000 

47,260,000 

82,996,000 

77,334,000 

206,895,000 

154,843,000 

66,899,000 

73,584,000 

423,258,000 

333,740,000 

153,096,000 



165,724,000 

46,565,000 

87,969,000 

82,358,000 

131,187,000 

1,588,075,000 

49,754,000 

53,529,000 

283,725,000 

75,238,000 

1,535,635,000 

1,297,586,000 

56,642,000 

86,909,000 

80,895,000 

210,459,000 

224,510,000 

76,199,000 

90,043,000 

466,948,000 

353,038,000 

175,287,000 



$ 6,872,401,000 $ 7,218,275,000 



Comments are made in the following paragraphs regarding the significant increases 
or decreases in expenditure charged to individual appropriations or groups of appropria- 
tions which mainly accounted for the variation between the departmental totals listed 
above for 1963-64 and 1964-65. 

17. Agriculture. The decrease of $60 million or 27% in expenditure by this Depart- 
ment was more than accounted for by the decrease of $65 million — from $122 million to 



AUDITOR GENERAL'S REPORT 15 

$57 million — in the amount appropriated for the net operating loss of the Agricultural 
Stabilization Board. The $50 million reduction in valuation of inventories held by this 
Board at March 31, 1964 had no counterpart in 1964-65. Other variations were increases 
of $2 million in outlays on rehabilitation and reclamation projects and $1 million in the 
operating requirements of research establishments. 

18. Atomic Energy. The net increase of $600,000 under this heading reflects an increase 
of $400,000 in contributions, grants and subsidies by the Atomic Energy Control Board, 
an increase of $3.4 million in operating expenditure and a decrease of $3.2 million in the 
capital expenditure of Atomic Energy of Canada Limited. 

19. Canadian Broadcasting Corporation. Expenditure in 1964-65 shows an increase 
of only $400,000 because the Corporation's capital requirements in 1964-65 were financed 
by means of loans instead of grants. Had the loans of $14 million been charged to expend- 
iture on a basis consistent with preceding years, expenditure on behalf of the Corporation 
would have reflected an increase of $15 million or 17% over the previous year (see para- 
graph 55). 

20. Citizenship and Immigration. The increase of $11 million or 15% in expenditure 
by this Department was due mainly to increased expenditure by the Immigration Branch 
of $1 million (37%) on transportation and other assistance for immigrants and settlers, 
and to increased expenditure by the Indian Affairs Branch of $9 million (16%) as follows: 
Indian Agencies, $1 million (15%); welfare, $3.1 million (23%); education, $4.4 million 
(14%); and community employment, $1.5 million (748%); partly offset by a decrease of 
$1 million (27%) for economic development. 

21. External Affairs. Expenditure by this Department increased by $34 million (35%) 
due mainly to an increase of $33 million (68%) in assistance to other countries. 

22. Finance. There was an increase of $182 million or 13% in expenditure by this 
Department due mainly to: an increase of $104 million (41%) in subsidies and other pay- 
ments to provinces, including increased payments of $91 million (41%) under the Federal- 
Provincial Fiscal Arrangements Act, 1960-61, c. 58; an increase of $58 million (6%) in 
interest paid on public debt; and a charge of $10 million in respect of a special contribu- 
tion to the Public Service Superannuation Account. 

23. Forestry. Expenditure by this Department increased by $7.9 million or 19%. 
Expenditure in respect of projects and programs under the Agricultural Rehabilitation 
and Development Act, together with payments to provinces pursuant to agreements under 
that Act, increased by $5.2 million (130%). An increase of $1 million (11%) in administra- 
tion, operation and maintenance costs was largely due to salary and wage increases. 
Construction costs increased by $1 million (45%) due mainly to the construction of an 
extension to a research laboratory at Pointe Claire, Que. 

24. Justice. Of the total increase of $13 million (31%) in the expenditure of this 
Department, $11 million represented an increase of 40% in expenditure on correctional 
services. This comprised an increase of $7.7 million (129%) for construction and improve- 
ment of institutions and $3.5 million (16%) for administration, operation and maintenance. 



16 AUDITOR GENERAL'S REPORT 

25. Labour. The increase of $3 million or 1.2% in expenditure by this Department 
was largely accounted for by payments of $16 million under the winter house building 
incentive program and SI million under the older worker employment and training 
incentive program, for which there were virtually no comparable expenditures in the 
preceding 3 T ear, together with increases of $16 million (60%) in payments under the 
municipal winter works incentive program, $5 million (11%) in the cost of administering 
the Unemployment Insurance Act, and $3 million (5%) in the Government's statutory 
contribution to the Unemployment Insurance Fund, offset by a decrease of $39 million 
in payments to the provinces to provide assistance for technical and vocational schools 
and training programs. 

26. Mines and Technical Surveys. Expenditure in this Department increased by 
$7.5 million or 11%. The significant increases were $3 million (16%) in connection with the 
movements of coal (Dominion Coal Board) and $2 million (29%) in respect of the activities 
of the Marine Sciences Branch. 

27. National Defence. The expenditure of $1,536 million in 1964-65 is the net amount 
after deducting from gross expenditure $7 million derived from the sale of surplus materials, 
supplies and equipment. The expenditure was $148 million or 9% less than the expenditure 
in the preceding year. This was mainly accounted for by a decrease in contributions to 
the Canadian Forces Superannuation Account, $64 million (47%) and in expenditure of 
the Royal Canadian Air Force, $45 million (6%), the Royal Canadian Navy, $25 million 
(8%) and the Canadian Army, $21 million (5%), while an increase was recorded for the 
Defence Research Board of $9 million (20%). 

28. National Health and Welfare. The increase of $94 million or 8% in expenditure by 
this Department was due mainly to the introduction, effective September 1, 1964, of the 
youth allowance program costing $27 million and increases of $42 million (11%) in pay- 
ments pursuant to the Hospital Insurance and Diagnostic Services Act, $7 million (1.4%) 
in family allowance payments, $6 million (15%) in old age assistance payments, $4 million 
(14%) in general health grants, $3 million (16%) in disabled persons allowances and $2 
million (7%) in administration, operation and maintenance costs of medical services. 

29. National Research Council. The $9.3 million or 20% increase in expenditure of 
the Council was due chiefly to an increase of $6.1 million (35%) in scholarships and grants 
in aid of research. 

30. National Revenue. Of the $3.9 million increase in expenditure by this Department, 
$2 million was in the Customs and Excise Division and $1.9 million in the Taxation 
Division — an increase of 5% in each case. The increases were due to generally higher 
administrative costs. 

31. Northern Affairs and National Resources. Expenditure of this Department in- 
creased by $3.6 million or 5%, although contributions to the provinces to assist in the 
development of roads leading to resources were less by $2 million or 25%. National Parks 
Branch operating costs increased by $1.2 million (11%) while construction expenditure 
was up $1 million (8%). Construction expenditure of the Northern Administration Branch 



AUDITOR GENERAL'S REPORT 17 

was down $2 million (19%) but this was more than offset by an increase of $3 million (15%) 
in administrative costs. The Water Resources Branch showed an increase of $2 million 
(18%) of which $1.3 million represented an increase (18%) in contributions to the provinces 
to assist in the conservation and control of water resources. 

32. Post Office. The expenditure of this Department increased by approximately $3.6 
million or 2% due largely to increased costs of transporting mail by land and air. 

33. Public Works. Expenditure by this Department increased by $70 million (45%). 
The major item was a net increase of $35 million (85%) in connection with Trans-Canada 
Highway construction. There was an increase of $13 million (17%) for accommodation 
services, including new costs of nearly $5 million arising from the transfer of Fort Churchill 
from the Department of National Defence on April 1, 1964. Harbours and rivers expendi- 
ture increased by $7 million (31%). The transfer of the Northwest Highway System from 
the Department of National Defence on April 1, 1964 resulted in additional costs of $8.5 
million. Expenses in connection with the construction of an ice control structure in the 
Montreal harbour area increased to nearly $6 million as compared with less than $500,000 
in the preceding year. 

34. Royal Canadian Mounted Police. Expenditure of the Force increased by $9.3 
million or 14%. Of this amount, approximately $7 million was due to increases in pay and 
pension benefits, while the balance resulted from general increases in operating costs. 

35. Trade and Commerce. Expenditure by this Department increased by $16 million 
or 22%. Payments to the Canadian Corporation for the 1967 World Exhibition totalled 
$18.6 million compared with $1.1 million in the preceding year. Expenditure by the Domin- 
ion Bureau of Statistics increased by $1.6 million (14%) mainly due to increases in staff, 
reclassifications and annual salary increments. The Canadian Government Travel Bureau 
accelerated its program to attract tourists to Canada and the resulting increases in staff 
and publicity material accounted for most of the $1 million (27%) increase in expenditure. 
The Canadian Government participation in the Canadian Universal and International 
Exhibition, Montreal, 1967 entered the firm planning stage during 1964-65 resulting in 
increased expenditure of $680,000 (438%). Payments to the Canadian Wheat Board with 
respect to carrying costs of temporary wheat reserves decreased by $5.5 million (14%) to 
$34 million. 

36. Transport. The expenditure of $467 million by this Department represented an 
increase of $44 million or 10%. This was largely accounted for by payments of $27 million 
to The St. Lawrence Seaway Authority in reimbursement of the accumulated Welland 
Canal deficit incurred in the calendar years 1959 to 1964, $6 million to the National Har- 
bours Board for outlay relating to the Canadian Universal and International Exhibition, 
Montreal, 1967, and $9 million — from $1 million to $10 million — for the construction of 
coastal ferries, docks and terminals. Other significant increases were $3 million — from $12 
million to $15 million — in payments to the Canadian National Railways in respect of the 
operating deficits of coastal ferries; $3 million — from $21 million to $24 million — in railway 
construction subsidies; $10 million — from $121 million to $131 million — in air services, 
mainly in respect of administration, operation and maintenance of the various facilities; 



18 AUDITOR GENERAL'S REPORT 

and $2 million in refunds of amounts previously credited to revenue in respect of the remis- 
sion of air route facility fees. Offsetting these increases were reductions of $4 million (10%) 
in the deficit of the Canadian National Railways; $8 million (20%) in capital subsidies for 
the construction of commercial and fishing vessels; $3 million — from $4 million to SI mil- 
lion — in respect of the termination of the collection of tolls on Victoria Bridge, Montreal; 
and S3 million of interest on the cost of constructing the railway diversion on the Bridge 
in the preceding year for which there was no comparable expenditure in 1964-65. 

37. Veterans Affairs. The expenditure of $353 million by this Department was $19 
million or 6% higher than in the preceding year. This increase was largely accounted for 
by increases of $10 million (12%) in war veterans allowances and assistance, $7 million 
(4%) in pensions for disability and death and $1 million (85%) in expenditure for hospital 
construction, improvements and equipment. The increases in allowances and pensions 
were mainly the result of higher rates put into effect on September 1, 1964. 

38. Other departments. Expenditure by the ''Other departments" totalled $175 million, 
an increase of $22 million or 14%. An increase of $4 million in expenditure of the Atlantic 
Development Board included disbursements of $3.6 million from the newly-established 
Atlantic Development Fund. Expenditure by the Department of Industry increased by 
$4.1 million (21%) due to an increase of $2.6 million (378%) in administrative costs and 
an increase of $1.5 million (8%) in costs of sustaining technological capability in Canadian 
industry. An increase of $14 million (190%) in expenditure by the Department of the 
Secretary of State was mainly due to a special grant of $10 million to the Canada Council 
together with an increase of $3.3 million (86%) in expenditure by the Centennial Com- 
mission and transfers to the Centennial of Confederation Fund. The largest decrease was 
one of $11 million in expenditure by the Office of the Chief Electoral Officer. 

Revenue 

39. The Summary of Revenue by Main Classifications and Departments for the 
fiscal year ended March 31, 1965, prepared by the Department of Finance for inclusion 
in the Public Accounts and certified by the Auditor General, is reproduced as Exhibit 4 
to this Report. The summary shows tax revenues accounting for $6,367 million of the total 
revenue of $7,180 million. 

40. The following table summarizes the revenue, by principal sources, for the past 
three years: 

1962-63 1963-64 1964-65 

Tax revenues — 

Personal income tax $ 1,744,626,000 $ 1,865,074,000 $ 2,103,282,000 

Corporation income tax 1 , 182 , 837 , 000 1 , 258 , 957 ,000 1 , 523 , 815 , 000 

Income tax on dividends, interest, 

etc., going abroad 129,137,000 124,500,000 143,718,000 

Sales tax 805,971,000 946,055,000 1,204,610,000 

Other excise taxes 260,378,000 273,415,000 269,082,000 

Customs duties 644,992,000 581,442,000 622,102,000 

Excise duties 381,866,000 393,326,000 411,402,000 

Estate tax 87,143,000 90,671,000 88,625,000 

Other tax revenues 27,000 92,000 140,000 

5,286,977,000 5,533,532,000 6,366,776,000 



AUDITOR GENERAL'S REPORT 19 

1962-63 1963-64 1964-65 



Non-tax revenues — 

Return on investments 311,861,000 366,413,000 422,694,000 

Net postal revenue 192,772,000 200,717,000 230,436,000 

Other non-tax revenues 137 , 099 , 000 152 , 542 , 000 160 , 404 , 000 

641,732,000 719,672,000 813,534,000 



$ 5,878,709,000 $ 6,253,204,000 $ 7,180,310,000 



41. The amounts shown for income taxes and sales tax do not include collections of 
taxes levied under the Old Age Security Act, R.S., c.200. These collections, which amounted 
to $960 million in the year, were credited to the Old Age Security Fund. A summary of the 
transactions relating to this Fund during the year, in comparison with the corresponding 
amounts for the two previous years, is given in paragraph 151. 

42. Income taxes. Income tax collections for 1964-65 show a net increase of $522 million 
over those of the previous year, $238 million from individuals, $265 million from corpora- 
tions and $19 million from non-residents. 

The increases are due principally to the higher levels of income during the year and to 
the effect during the year of legislation passed in 1963 which moved forward the payment 
dates for corporation income tax. 

43. Sales tax. The increase of $259 million in sales tax over 1963-64 is due in part to 
the imposition in 1963 of a sales tax (4% effective June 14, 1963, increased to 8% effective 
April 1, 1964) on building materials, production machinery and equipment. A further 3% 
tax on these items was levied under the Old Age Security Act effective January 1, 1965. 

44. Other excise taxes. The following is a summary of excise taxes, other than sales tax, 
collected during the year ended March 31, 1965, with comparable amounts for the two 
previous years : 

1962-63 1963-64 1964-65 



Cigarettes $ 195,313,000 $ 200,211,000 $ 197,495,000 

Manufactured tobacco 19,123,000 23,460,000 17,149,000 

Phonographs, radios and tubes 9 , 875 , 000 1 1 , 432 , 000 13 , 082 , 000 

Toilet articles and preparations 10 , 142 , 000 1 1 , 126 , 000 12 , 79 1 , 000 

Television sets and tubes 10,059,000 10,578,000 10,440,000 

Jewellery, clocks, watches, chinaware, etc 5 , 793 , 000 6 , 353 ,000 6 , 864 , 000 

Wines 3,727,000 3,814,000 4,092,000 

Cigars 3,372,000 3,267,000 3,700,000 

Sundry excise taxes 3,350,000 3,505,000 3,816,000 

Refunds and drawbacks -376,000 -331,000 -347,000 



$ 260,378,000 $ 273,415,000 $ 269,082,000 



20 AUDITOR GENERAL'S REPORT 

45. Excise duties. A listing of excise duties collected during the year ended March 31, 
1965, in comparison with corresponding amounts for the two previous years, is given in the 
following table : 

1962-63 1963-64 1964-65 



Cigarettes $ 157,049,000 $ 157,054,000 $ 168,797,000 

Spirits 122,099,000 129,406,000 134,716,000 

Beer 98,147,000 102,907,000 105,386,000 

Other excise duties 9,463,000 8,623,000 8,403,000 

Refunds and drawbacks -4,892,000 -4,664,000 -5,900,000 



I 381,866,000 $ 393,326,000 $ 411,402,000 



46. Return on investments. The following is a listing of the revenue from the various 
investments in 1964-65, along with the comparable figures for the two previous years: 



1962-63 1963-64 1964-65 



Bank of Canada $ 96,680,000 $ 116,386,000 $ 128,238,000 

Central Mortgage and Housing Corporation . . 79 , 925 , 000 85 , 525 , 000 93 , 349 , 000 

Exchange Fund Account 35,227,000 62,594,000 63,552,000 

The St. Lawrence Seaway Authority — 2 , 568 , 000 43 , 065 , 000 

Deposits with chartered banks 14 , 395 , 000 13 , 702 , 000 19 , 639 , 000 

Farm Credit Corporation 8,482,000 10,869,000 13,934,000 

Canadian National Railways 3,824,000 13,018,000 11,601,000 

Veterans' Land Act loans 6,549,000 7,373,000 8,308,000 

Securities Investment Account 12 , 35 1 , 000 4 , 059 , 000 6 , 504 , 000 

Loans to National Governments 29 , 272 , 000 26 , 301 , 000 6 , 383 , 000 

Polymer Corporation Limited 3 , 000 , 000 3 , 500 , 000 4 , 000 , 000 

National Harbours Board 3,631,000 3,475,000 3,425,000 

Export Credits Insurance Corporation 578 , 000 1 , 061 , 000 3 , 047 , 000 

National Capital Commission 1 , 776 , 000 2 , 319 , 000 2 , 858 , 000 

Canadian Overseas Telecommunication Cor- 
poration 1,971,000 2,586,000 2,706,000 

Northern Canada Power Commission 1 , 696 , 000 1 , 648 , 000 2 , 105 , 000 

Eldorado Mining and Refining Limited 3 , 000 , 000 2 , 000 , 000 1 , 500 , 000 

Special United States of America securities — 

Columbia River Treaty — — 1 , 150,000 

Northern Ontario Pipe Line Crown Corpora- 
tion 4,087,000 1,583,000 — 

Other loans and investments 5,417,000 5,846,000 7,330,000 



$ 311,861,000 $ 366,413,000 $ 422,694,000 



47. The amounts shown for revenue from investment in the Bank of Canada represent 
annual profits earned by the Bank and surrendered to the Receiver General as required 
by section 28 of the Bank of Canada Act, R.S., c.13. 

Revenue from Central Mortgage and Housing Corporation for 1964-65 comprised 
$89,711,000 ($80,297,000 in 1963-64) of interest on advances under section 22 of the Central 
Mortgage and Housing Corporation Act, R.S., c.46, and $3,638,000 ($5,228,000 in 1963-64) 
representing the profit for the year ended December 31, 1964 which was transferred 
to the Receiver General as required by section 30 of the Act. 



AUDITOR GENERAL'S REPORT 21 

Revenue from The St. Lawrence Seaway Authority comprised $43,062,000 paid on 
account of interest deferred in the years 1959, 1961 and 1962 and current interest of $3,000. 
The payment of this interest was possible largely by reason of receipt of $27,073,000 from 
Department of Transport Vote 107d to reimburse the Authority in respect of the accumu- 
lated Welland Canal deficit for the years 1959 to 1964. An additional $13,200,000 was 
available from the proceeds of loans to cover capital expenditure financed initially from 
operating funds. 

Interest at the weekly average accepted treasury bill tender rate for the three months 
treasury bills, less 10%, is earned on deposits with chartered banks in excess of an aggregate 
of $100 million. 

Interest earned on temporary holdings of securities of Canada in the Securities Invest- 
ment Account totalled $5,032,000. A profit of $886,000 was realized on securities sold and 
a profit of $586,000 resulted from the cancellation of certain securities held in the Account. 

The reduction of $19.9 million in interest on loans to National Governments is almost 
entirely due to the Government of the United Kingdom exercising its option to defer the 
payment of interest due December 31, 1964 on loans under the United Kingdom Financial 
Agreement Act 1946. 

The increase of $2 million in revenue from the Export Credits Insurance Corporation 
results from a substantial increase in advances to enable the Corporation to provide 
long-term financing for export sales of capital goods. 

Revenue of $1,150,000 on special United States of America securities represents interest 
to November 1, 1964 at from 4% to 4j% on an investment of $219.5 million in medium 
term non-marketable securities of the United States Government acquired on September 
16, 1964. 

Loans to the Northern Ontario Pipe Line Crown Corporation were repaid in full in 
1963-64. 

48. Net postal revenue. The following table shows the gross postal revenue, disburse- 
ments therefrom, and the resulting net postal revenue for the last three years : 

1962-63 1963-64 1964-65 



Gross postal revenue $ 222,300,000 $ 235,808,000 $ 263,704,000 

Disbursements — 

Remuneration of postmasters and staffs at 

certain classes of smaller post offices 25 , 239 , 000 29 , 936 , 000 28 , 828 , 000 

Other disbursements 4,289,000 5,155,000 4,440,000 

29 , 528 , 000 85,091, 000 S3 , 268 , 000 

Net postal revenue $ 192,772,000 $ 200,717,000 $ 230,436,000 



The amounts shown for "Other disbursements" mainly comprise charges on parcels 
mailed in Canada for delivery in foreign countries and transit charges on Canadian mail 
forwarded through foreign countries, together with compensation paid to messengers for 
special delivery of letters and parcels. 



22 AUDITOR GENERAL'S REPORT 

49. Other non-tax revenues. An analysis of the amounts shown in the table in para- 
graph 40 for "Other non-tax revenues" for 1964-65, with comparable figures for the two 
previous years, is given in the following table : 

1962-63 1963-64 1964-65 



Services and service fees $ 46,186,000 $ 51,321,000 $ 60,924,000 

Proceeds from sales 26,531,000 28,445,000 24,250,000 

Privileges, licences and permits 25 , 008 , 000 27 , 172 , 000 30 , 825 , 000 

Refunds of previous years' expenditure 22 , 392 , 000 26 , 839 , 000 20 , 546 , 000 

Bullion and coinage 9,404,000 9,717,000 12,299,000 

Miscellaneous 7,578,000 9,048,000 11,560,000 



$ 137,099,000 S 152,542,000 $ 160,404,000 



Comments on Expenditure and Revenue Transactions 

50. Reference has already been made to the statutory responsibility of the Auditor 
General, under section 70 of the Financial Administration Act, to call attention to specific 
classes of transactions observed during his examinations and to any other case that he 
considers should be brought to the notice of the House of Commons. 

Pursuant to this direction, the following matters relating to the expenditure and 
revenue transactions examined during the fiscal year under review are brought to the 
attention of the House in this Report. Several matters of a similar nature relating to the 
expenditure and revenue transactions of the Crown corporations are also included in this 
section of the Report. 

51. Revised vote pattern. In our 1964 Report (Appendix 1, item 6) reference was made 
to the Third Report 1963 of the Public Accounts Committee tabled in the House on Decem- 
ber 19, 1963 in which it recommended the 

adoption of the revised vote pattern proposed by the Treasury Board for introduction 
into the Main Estimates 1964-65 subject to certain improvements suggested by the 
Auditor General to the Committee. 

The vote pattern actually used in the 1964-65 Estimates differed in certain instances 
from the pattern which had been considered by the Public Accounts Committee. Three of 
the more important variations were as follows : 

1. While the revised vote pattern indicated that there would continue to be separate 
appropriations for "Construction or Acquisition of Buildings, Works, Land and 
Equipment, etc.", these appropriations were combined in a number of instances with 
the related Administration or Operation and Maintenance votes where the amount 
involved was small in relation to the amount of those votes. 

An exception was the Department of National Defence where the Construction 
votes were combined with the Operation and Maintenance votes for each of the three 
Services although more than a relatively small amount was involved. This made pos- 
sible transfers during the year, with the approval of the Treasury Board, between the 



AUDITOR GENERAL'S REPORT 23 

Operation and Maintenance allotments and the Construction allotments in Votes 15, 
20 and 25 of amounts of $40,000, $850,000 and $5,675,000 in order to utilize available 
funds in these allotments. 

2. The following provision was added to the Operation and Maintenance and Construction 
votes of the three Services and to the Defence Research Board Vote 30, for Operation 
and Maintenance, and Vote 35 for Construction: 

including authority, notwithstanding the Financial Administration Act and section 11 of the 
Surplus Crown Assets Act and subject to the approval of the Treasury Board, to spend revenues 
received from the sale of surplus materials, supplies and equipment. 

Under this provision the proceeds from sales by Crown Assets Disposal Corporation 
during the year of materials declared surplus by the Department amounting to 
$6,959,000 were credited to these appropriations thus supplementing the amounts 
included in the Estimates. 

3. Vote 40 of the Department of Public Works under the heading of "Roads, Bridges and 
Other Engineering Services" in the revised vote pattern provided for "Construction or 
Acquisition of Buildings, Works, Land and Equipment as detailed in the Estimates". 
However, in the 1964-65 Estimates the following provision was added: 

the amount within the vote to be expended on individually listed projects may be increased or 
decreased subject to the approval of Treasury Board. 

This provision made possible the transfer of $450,000 of the $500,000 which had 
been included in the appropriation "Towards federal share of the cost of City of Ottawa 
projects" to another project, "Towards the cost of planning a causeway and associated 
structures across Northumberland Strait". 

The revised vote pattern made possible a number of transfers of funds between services 
with the Treasury Board's approval, which would not have been possible under the previous 
vote pattern. Examples of these are : 

1. Department of Northern Affairs and National Resources 

(a) An amount of $55,000 was transferred within Vote 15 to National Parks and 
Historic Sites and Monuments of which $40,000 was made available from Branch 
Administration and $15,000 from Canadian Wildlife Service. 

(6) An amount of $100,000 was transferred within Vote 20 (the Construction vote 
associated with Vote 15) to National Parks and Historic Sites and Monuments 
from Canadian Wildlife Service. 

(c) In Vote 30 for Water Resources — -Administration, Operation and Maintenance, 
etc., an amount of $100,000 was transferred to the Water Resources Branch out of 
an amount of $950,000 which had been included in Supplementary Estimates (A) 
for "Nelson River — Expenditures in connection with investigations, etc." 

2. Department of Public Works 

In Vote 15 an amount of $750,000 was included in the details of the Estimates for 
"Miscellaneous works not otherwise provided for, including expenditures on works on 
other than federal property". By transfers from other items in the details of the Esti- 
mates which provided for construction in the various provinces, an additional amount 
of $3,150,000 was made available for miscellaneous works. 



24 AUDITOR GENERAL'S REPORT 

3. Department of Transport 

(a) In Vote 10 for the "Construction or Acquisition of Buildings, Works, Land, Vessels 
and Equipment including payments to Provinces or Municipalities as contribu- 
tions towards construction done by those bodies", an amount of $3,779,000 was 
included for canals. By means of transfers of approximately equal amounts from 
special provisions for the St. Lawrence and Saguenay Rivers Ship Channels and 
the Canadian Coast Guard, this provision for canals was increased by a further 
$2,127,000. 

(6) Within Vote 20 which provided for "Railways and Steamships — Construction or 
Acquisition of Buildings, Works and Land, Dock and Terminal Facilities, and of 
Vessels and Related Equipment, etc." an amount of $500,000 was transferred 
from the provision for Nova Scotia-East Coast, Newfoundland, Terminals Devel- 
opment to Ferry Vessels and Equipment. 

52. Prairie Farm Emergency Fund. The deficit in the operations of this Fund during 
the year was $367,000 compared with deficits of $1,073,000 and $7,295,000 in 1964 and 1963. 

The Fund operates as a special account within the Consolidated Revenue Fund to 
record transactions under the Prairie Farm Assistance Act, R.S., c.213. Under the Act a 
levy of 1% is imposed on the price of grain purchased by licensees under the Canada Grain 
Act and the moneys collected, which totalled $10,238,000 during the past year, are credited 
to the account. Awards are made to eligible farmers in areas affected by crop failure in the 
provinces of Manitoba, Saskatchewan and Alberta and the Peace River District of British 
Columbia. During the year awards amounted to $10,605,000 and the $367,000 by which 
these exceeded the revenue from the 1% levy was charged to Department of Agriculture 
Vote 75d. 

The Act provides assistance to farmers where a general crop failure has occurred. The 
minimum area that can normally be considered a general crop failure area is an entire 
township, but section 6(b) provides that a rectangular block of sections, having an area of 
not less than one-third of a township, can be declared eligible for an award as though it were 
a complete township. Under section 6(a) additional sections of land that lie alongside of 
the boundary of an eligible township can be added to the township. It was the opinion of 
the Deputy Minister of Justice that a block of land which is eligible for an award under 
section 6(b) cannot be regarded as an eligible township for the purposes of making other 
sections of land having a side that lies along its boundary eligible for an award under section 
6(a). Nevertheless, during the period December 1, 1964 to March 31, 1965 some $909,000 
was paid to farmers in respect of crop failures on land purportedly under section 6(a) by 
reason of being alongside of a rectangular block of land eligible under section 6(b). These 
payments were regularized by a dollar vote included in Appropriation Act No. 2, 1965, 
assented to April 3, 1965. The vote in question is Department of Agriculture Vote 70d 
which declared that any block of land eligible for an award under section 6(b) was an eligible 
township for purposes of section 6(a) and ratified any previous awards made on this basis. 

No awards are made in respect of sections of land where the average yield of wheat is 
12 bushels or more per acre. However, a farmer occupying part of a section of land is entitled 
to receive an award even though the yield on his land exceeds 12 bushels per acre if the 
other occupant of this particular section has a yield low enough to bring the average yield 
for the section below 12 bushels per acre. Three cases were observed where farmers were 



AUDITOR GENERAL'S REPORT 25 

paid $310, $135 and $44 where their yields were 13.5, 14.8 and 21 bushels per acre respec- 
tively. In another township, which was eligible on the basis of wheat being the predominant 
crop, two cases were observed where awards were made to farmers who had very successful 
harvests of coarse grains. One farmer harvested 2,700 bushels of oats on 100 acres and the 
other 3,600 bushels of rye on 180 acres. Converted to a wheat-yield basis, the yield would 
be 13.5 and 26.6 bushels per acre. These farmers were paid awards of $315 and $400 respec- 
tively. 

Inspections of areas where general crop failures have occurred are made to secure 
information from farmers to determine the actual yield of grain on each parcel of land. 
This is recorded on a "cultivated acreage report" which is signed by the farmer and the 
inspector. Two methods of verifying the information given by a farmer are measurement of 
his grain bins and examination of his Wheat Board permit book. Inspectors are required 
to measure bins and examine permit books or explain why they have not done so on the 
cultivated acreage reports. Our limited test revealed that Wheat Board permits were not 
examined in all cases and the bins were not always measured. However, measurement of 
the bins does not assure accuracy of the reports because wheat grown in one year may be 
stored with wheat produced in a previous year or in bins located outside the crop failure 
area. Furthermore, it is frequently impossible to examine storage bins located in remote 
locations when country roads are practically impassable due to inclement weather. As a 
result the inspector is forced to rely on information given him by the farmer. 

During the year a special branch was set up, with headquarters in Regina, to make 
spot checks of selected areas. One of the reports of this special branch concerned a 
suspected area in Alberta. The investigator reported that there appeared to be no doubt 
that falsification of cultivated acreage reports was the rule rather than the exception and 
that the elevator agents were also involved. Quantities of wheat on hand, stated to have 
been produced in the previous year, did not agree with grades of that year. Sales of grain 
were made in locations other than the location shown on the permit books and there was 
also a strong indication that considerable wheat had been sold to a feed processing plant. 
There appeared to be no doubt that considerably more wheat had been produced in 1964 
than had been shown on the cultivated acreage reports. Eleven townships were involved. 
No payments had been made in the area and the municipalities had been requested to 
withdraw applications for awards. 

The Commission of Inquiry established by Order in Council on December 21, 1963 to 
inquire into payments made under the Act, in its report of June 10, 1964, observed that 
the present system of processing cultivated acreage reports through the employment of a 
large number of inspectors was both unnecessary and expensive and did not assure accuracy. 
The Commission noted that new permit books are issued at the end of each crop year and 
recommended that, as a condition precedent to a farmer having a right to secure an award, 
he be required to set forth in his permit book, at the time he receives it, a statement of 
grain on his farm. The Commission also recommended that all farmers in an area affected 
be required to complete cultivated acreage reports when a municipality makes an applica- 
tion for assistance, so that it would not be necessary for inspectors to secure these reports. 
In our opinion these two recommendations require implementation. 



26 AUDITOR GENERAL'S REPORT 

Last year we noted that the Board of Review, established under the Act to decide 
questions concerning eligibility for awards and other relevant matters, did not maintain 
any minutes and, as a result, difficulty was experienced in verifying certain awards under 
the Act. This condition still exists. 

Since inception of the Act three townships have received crop failure assistance in 24 
out of 26 crop years and 30 surrounding townships were eligible in 21 years of the same 
period. We again recommend that consideration be given to the elimination from eligibility 
for awards, of marginal land on which crop failures continuously occur from year to year, 
and also to the repeal of section 7 of the Act which requires every award to be paid in the 
month of December. It is impossible to comply with this section of the Act as most of the 
awards cannot be paid until January or February. 

53. Loss arising from delay in acceptance of offer to purchase land. Early in 1962 the 
Prairie Farm Rehabilitation Administration opened negotiations for the purchase of certain 
properties required in connection with the construction of a water reservoir in Saskatch- 
ewan. One of the owners concerned offered to accept the sum of $10,750, in full and final 
settlement for his property, on the condition that payment be made on or before October 
31, 1962. 

The offer was forwarded to P.F.R.A. headquarters in Regina on May 29, 1962 and 
was sent to Ottawa on July 31, 1962. Order in Council P.C. 1962-2/1336 of September 27, 
1962 authorized acquisition of the property involved but it was not until late in October 
that a solicitor in the Province of Saskatchewan was appointed to handle the conveyance. 
On November 3, 1962 solicitors for the landowner advised that, because the condition set 
out in the Offer to Sell as to time of payment had not been complied with, the offer had 
been withdrawn. 

Since the land in question was essential to the water storage project, the Department 
of Agriculture undertook expropriation proceedings in 1964. Settlement was then made 
with the landowner for $16,000, an increase of $5,250 over the amount agreed upon prior 
to withdrawal of the original offer. 

54. Loss on advances for construction of potato warehouses. Order in Council P.C. 2017 
of April 20, 1950 authorizes the Minister of Agriculture to grant financial assistance to 
co-operative associations for the construction of potato warehouses. The regulations 
governing the grants require co-operative associations applying for assistance to assume 
not less than one-quarter of the cost of construction, the province to pay the remainder. 
Following construction of a warehouse, the federal Government reimburses one-half of the 
amount paid by a province. One-half of the subsidy received by a co-operative association 
is required to be repaid by a volume levy on all potatoes and other produce handled by the 
warehouse. 

It has not been the practice to protect the recoverable portion of a subsidy by means 
of a mortgage on the warehouse and two cases were noted where amounts required to be 
repaid by co-operative associations will not be recovered. 



AUDITOR GENERAL'S REPORT 27 

In 1960 the Province of Saskatchewan paid $75,728 to a co-operative association for 
construction of a potato warehouse and in 1962 the federal government paid $37,864 to 
the Province as its share of the subsidy. 

The manager of this co-operative association was also the manager of a nearby family- 
owned potato chipping plant. A member of the family was on the board of directors of the 
co-operative association and it soon became apparent that the warehouse was being run 
solely for the needs of the chipping plant. In 1960, 1.5 million pounds of potatoes in storage 
were not offered for sale even though wholesalers in the three northern cities of the Province 
were buying potatoes in Alberta and Manitoba. It was the opinion of the trade that all the 
potatoes could have been sold on the commercial market. Some of the potatoes were 
stored in a special insulated bin and, in order to condition them for chipping, the tempera- 
ture in this bin was raised. However, the heat loss from this bin penetrated the other bins 
of the warehouse. Advice from many sources on the necessity of marketing the potatoes 
was ignored and $50,000 worth of potatoes were allowed to rot in the warehouse. 

The chipping plant did not prosper and went into liquidation owing the co-operative 
association some $12,000. To finance its operations the co-operative association then 
borrowed $40,000 from a loan company and gave as security a first mortgage on the potato 
warehouse. 

The losses incurred on the 1960 potato crop deterred growers and by 1962 it was 
evident that the warehouse could not operate economically. In 1964 the mortgagee was 
allowed to sell the warehouse. No amount was received on account of the levy on the 
volume of the produce handled while the warehouse was in operation and it now appears 
that neither the provincial nor federal governments will recover any part of the $18,932 
due to each. 

In the second case, a co-operative association received $26,930 from the Province of 

British Columbia to assist in the construction of a potato warehouse and in 1960 the 

| federal Government reimbursed the Province one-half of the subsidy which it had paid. 

After a year's operation the co-operative association was dissolved while still owing $2,890 

I to the contractor who had built the warehouse and a further sum of $3,178 to a member 

who had advanced this sum to the co-operative association. Both amounts were secured 

; by mortgages and when foreclosure proceedings were commenced the Province of British 

1 Columbia paid off the mortgages and rented the warehouse. The provincial Government is 

i presently negotiating the sale of the warehouse for $10,000 and, after deducting the $6,068 

i paid on the mortgages, will divide the remainder equally between the two governments. 

The federal Government will then have received only $3,497 and therefore will lose $3,236 

i of the recoverable portion of the subsidy. 

In our opinion, consideration should be given to taking security, in the form of a first 
mortgage on each warehouse or in some other form, for that portion of the subsidy recover- 
able by the provincial and federal governments. 

55. Effect of change in method of financing capital expenditures of the Canadian Broad- 
casting Corporation. Paragraph 187 in the Crown Corporations section of this Report 
includes comments regarding the operations of the Canadian Broadcasting Corporation. 



28 AUDITOR GENERAL'S REPORT 

As required by section 35(1) of the Broadcasting Act, 1958, c.22, the Canadian Broad- 
casting Corporation submits a capital budget and an operating budget for each financial 
year for approval by the Governor in Council on the recommendation of the responsible 
Minister and the Minister of Finance. Each year, from the proclamation of the Act until 
March 31, 1964, funds to meet each of these budgets have been provided by two separate 
grants under Appropriation Acts, both charged to budgetary expenditure. 

The funds required by the Corporation to meet its capital expenditure during the 
year ended March 31, 1965 were provided by means of loans from the Government instead 
of grants. The relative vote of Appropriation Act No. 10, 1964 provided for: 

Loans to the Canadian Broadcasting Corporation for the purpose of capital expenditures, 
subject to terms and conditions prescribed by the Governor in Council — $14,250,000. 

These loans, repayable by the Corporation in equal annual instalments over the next 
twenty years, with interest payable at rates of 5j% and 5|% per annum, are included 
in "Loans to and investments in Crown corporations" appearing as an asset item on the 
Statement of Assets and Liabilities of Canada (see paragraph 149) . As a consequence, the 
Statement of Expenditure and Revenue of Canada was not prepared on a basis consistent 
with that of the preceding year and the resultant deficit of $37,965,000 shown on that 
Statement has been under-stated to the extent of the capital expenditures of $14,250,000. 
This procedure is a contradiction of the long-standing principle of the Department of 
Finance that only realizable or interest- or revenue-producing assets should be offset 
against the gross liabilities on the Statement of Assets and Liabilities with costs of capital 
works being charged to expenditure at the time of acquisition or construction. This subject 
is dealt with further in paragraph 167 under the Comments on Assets and Liabilities. 

The Canadian Broadcasting Corporation is not in a position to repay either principal 
or interest on loans such as these unless it is placed in funds for the purpose. Consequently, 
the grant of $85,869,000, provided by Appropriation Act No. 10, 1964 to cover the net 
operating requirements of the Corporation included an amount of $374,000 to enable the 
Corporation to pay the interest on the loans. Receipt of this interest by the Department 
of Finance is recorded under the heading of "Non-tax Revenues — Return on Investments". 
This procedure has the effect of increasing the recorded amount of both the revenues and 
expenditures of Canada in violation of generally accepted accounting principles. 

The 1965-66 Estimates tabled on March 22, 1965, but not yet approved by Parliament, 
include a grant of $97,044,000 "in respect of the net operating amount required to discharge 
the responsibilities of the national broadcasting service". This amount includes the first 
principal repayment of $710,000 and interest of $1,170,000 on the loans made in 1964-65. 

The wording of the Vote does not disclose this information nor is it provided in the 
Details of Services. 

56. Salaries and wages paid for work not performed. In the course of the audit of the 
payrolls of the Canadian Broadcasting Corporation we noted that program costs included 
payments to employees for scheduled hours during daily or weekly tours of duty which 
were in excess of the actual hours of attendance. 



AUDITOR GENERAL'S REPORT 29 

All payments were in accordance with the articles of the various union agreements 
and our tests did not reveal any discrepancies in their application. 

In order to determine the extent of these costs, a special study was made of the pay- 
rolls of the Toronto Area and English Network for the period November 23 to December 
20, 1964 and of the Quebec Region and French Network for the period February 22 to 
March 21, 1965. 

Our study for the selected four-week periods disclosed the amount of scheduled time 
in excess of actual, as follows : 

Com- 
Hours pensation 



Toronto Area and English Network 5,614 $ 14,862 

Quebec Region and French Network 7,950 20,423 



13,564 $ 35,285 



Other tests have served to confirm that this situation prevailed throughout the year. 
On the basis indicated by our test examinations, payment of salaries and wages for work 
not performed would amount to approximately $450,000 for the year. 

The majority of the employees receiving this compensation were credited for hours not 
worked during each of the four weeks included in our study. Figures for three of the 
employee classes selected for the test, comprising some 636 employees receiving $23,379, 
or 66% of the payments, indicated that the additional compensation averaged $36 for the 
period. The Corporation has advised us that it regards payment of compensation cal- 
culated in this manner as proper, having regard to the effect of scheduling requirements for 
its present studio facilities, the availability of artists, the exigencies of actuality broadcasts 
and the nature of broadcast program production. 

Since the procedure followed results in payment for work not performed, it is, in our 
opinion, non-productive expenditure of the type which the Public Accounts Committee 
has requested be brought to the attention of the House. 

57. Financing of the 1967 World Exhibition. Paragraph 189 in the Crown Corporations 
section of this Report includes comments on the operations of the Canadian Corporation 
for the 1967 World Exhibition during the past year. 

As explained in that paragraph, the existing legislation provides that grants provided 
by Canada, the Province of Quebec and the City of Montreal must not exceed $20 million, 
$15 million and $5 million, respectively, a total of $40 million. The federal contribution is 
limited to $20 million under section 11 of the Canadian Corporation for the 1967 World 
Exhibition Act. 

The present revised overall plan approved by Canada and the Province of Quebec, as 
provided for under section 10 of the Act, estimates total costs of $250,704,000 for the 
Exhibition with revenues, salvage and asset recoveries estimated at $189,123,000. As this 
forward estimate indicates a net cost or deficit of $61,581,000 at the close of the Exhibition, 
after allowing an estimated $56,039,000 for the value of the assets remaining at that time, 
it follows that the Corporation's total requirement by way of grants is $117,620,000 based 



30 AUDITOR GENERAL'S REPORT 

on present estimates. Because of the limits imposed by the present legislation of Canada 
and the Province of Quebec as to the amount of the grants which may be made to the 
Corporation, changes will be required in this legislation before these additional substantial 
grants may be made. Unless these additional grants are provided, this total requirement 
(less $40,000,000 already granted) will have been financed by loans and the Corporation 
will be burdened with the cost of additional interest and at the conclusion of the Fair will 
not have the cash resources necessary for payment of the indebtedness. 

In addition to the federal contribution of $20 million to the Corporation, subsection 
(5) of section 12 of this Act provides for temporary borrowings from the federal Govern- 
ment but the aggregate of all amounts loaned under this subsection and outstanding at 
any time shall not exceed $1 million. 

Subsections (1) to (4) of section 12 of the federal Act make provision for the Corpora- 
tion to issue securities guaranteed by Canada and Quebec. Following the close of the year, 
the Corporation made arrangements to issue such securities and Canada proposes to 
purchase and hold them to the extent of $80 million, as evidenced by Department of 
Finance Vote L26b of Supplementary Estimates (B) which were submitted to the House 
on June 22, 1965. Although this vote was not passed by Parliament before it recessed on 
June 30, 1965, seven-twelfths of the amount was approved by Appropriation Act No. 6, 
1965 assented to on that date. 

The restrictive sections of the Canadian Corporation for the 1967 World Exhibition 
Act, namely sections 1 1 and 12 outlined above, cause us to question whether Parliament 
originally intended that Canada should purchase securities of the Corporation. 

58. Questionable charges to Vote 15 of the Department of Citizenship and Immigration. 
For several years this Office has been concerned with whether welfare and educational 
expenditures on non-Indians, other than on a recoverable basis, were within the ambit of 
the Indian Affairs Branch votes of the Department of Citizenship and Immigration. In 
1961 we referred the matter to the Secretary of the Treasury Board and certain restrictive 
words were dropped from the text of the welfare vote, as they had been previously from the 
vote for education of Indians. We suggested at the time that all doubt be removed by 
modifying the text of each vote to indicate clearly that certain categories of non-Indians 
were included. This suggestion was not followed. 

In conformity with the revised vote pattern introduced in the Main Estimates 1964-65, 
a number of vote texts of the Indian Affairs Branch including administration, Indian 
agencies, welfare, economic development and education were consolidated in one vote 
heading which reads : 

Vote 15 — Administration, Operation and Maintenance including expenditures on 
works on other than federal property, grants and contributions as detailed in the Estimates, 
recoverable expenditures under agreements entered into with the approval of the Governor 
in Council with the Governments of the Provinces and Territories and with local School 
Boards in respect of social assistance to persons residing on Indian reserves other than 
Indians and the education in Indian schools of children other than Indian children, and to 
authorize the Minister of Citizenship and Immigration to provide, in respect of Indian com- 



AUDITOR GENERAL'S REPORT 31 

mercial activities, for the instruction and supervision of Indians, the furnishing of materials, 
the purchase of finished goods and, notwithstanding any other Act, the sale of such finished 
goods. 

In 1964-65 this vote was charged, like the votes of previous years, with non-recover- 
able welfare and educational expenditures on non-Indians residing on reserves. 

In our opinion, the only permissible expenditure on non-Indians authorized by the 
vote is expenditure specifically provided for in the vote, that is, expenditure made on a 
recoverable basis under agreements with the governments of provinces and territories and 
with local school boards. 

59. Disposal of surplus plant. In March 1964 the Minister of Defence Production was 
authorized to solicit and negotiate bids for the sale of three plants operated by Canadian 
Arsenals Limited. Bids were invited for each of the plants, the prospective purchaser 
being required to demonstrate a capability to manage manufacturing facilities involving 
military equipment, state his intention to retain the defined military explosive manufac- 
turing capabilities and indicate his proposed use of the remaining plant capacity. Only the 
DeSalaberry plant was sold. 

Only one bid was received for this plant which is located on 1,094 acres fronting on the 
St. Lawrence River near Valleyfield, Que. The original cost of the plant's land, buildings, 
machinery and equipment was $18,210,000. Over the past six years its operations have 
resulted in losses averaging $1.5 million annually, exclusive of any charge for depreciation 
of its buildings and equipment, and departmental officials estimated that future operating 
losses would be about $1 million annually. 

In May 1964 an independent appraiser advised Crown Assets Disposal Corporation 
that a fair market value of the property, exclusive of machinery and equipment, would be 
$6,492,000, subject to the qualification that if any use of the property, other than the use 
to which it is now put, were to be contemplated by a purchaser, then the value would be 
but a fraction of the figure mentioned because most of the buildings are one-purpose struc- 
tures. At the same time machinery and equipment in the plant were separately evaluated 
on an estimated recovery basis by officials of Canadian Arsenals Limited, Department of 
Defence Production and Crown Assets Disposal Corporation at $1,405,000. This placed 
the total appraised fair market value of the land, buildings, machinery and equipment at 
$7,897,000. 

The company that had submitted the bid planned to use the facilities for manufac- 
turing propellants and military high explosives and to develop suitable propellants for 
commercial ammunition. The company also proposed to investigate the commercial appli- 
cation of that part of the facilities designed for the production of nitrocellulose and nitric 
acid but did not contemplate that its foreseeable production would ever fully utilize the 
plant capacity available. 

Taking into consideration the appraiser's qualification in valuing the property, the 
fact that the company could not utilize the full plant capacity and that a major portion of 
the plant could not be commercially utilized without substantial conversion, it was con- 
cluded that the fair market value of the land, buildings, machinery and equipment should 
be'reduced from $7,897,000 to $4,137,000. 



32 AUDITOR GENERAL'S REPORT 

The company offered to purchase the land, buildings, machinery and equipment for 
SI million and to pay $757,000 for the active inventory on the premises. It also indicated 
that, as a condition of sale, it was prepared to retain the skills and capabilities of the plant 
to produce defence supplies for a period of ten years without cost to the Crown and to 
retain items of equipment and special tooling essential to such production and to accord 
first priority to defence contracts. The company's offer was accepted and the sale com- 
pleted on this basis on March 31, 1965. 

60. Defence Production Revolving Fund. Section 16 of the Defence Production Act, 
R.S., c.62, established the Defence Production Revolving Fund in an amount not to exceed 
$100 million for the purpose of acquiring, storing, maintaining, and transporting stocks of 
materials or defence supplies, and providing working capital loans and advances to persons 
engaged in defence work. The section provides that no amount may be credited to the 
revolving fund to reimburse the fund for any loss sustained except pursuant to an appropria- 
tion by Parliament for that purpose. However, the Act is silent with respect to the treat- 
ment of any surplus. 

The Financial Administration Act requires a surplus in a revolving fund to be "trans- 
ferred from the revolving fund as revenue" and it also includes a provision similar to that 
appearing in the Defence Production Act that "no amount may be credited to the revolving 
fund to meet the deficiency except with the authority of Parliament". These directions 
with regard to treatment of surpluses and deficits seem to us to clearly indicate that Parlia- 
ment wishes to be made aware of losses sustained through the operations of revolving funds 
and does not intend that any such losses be absorbed by a previously accumulated surplus. 

In 1956 there was a surplus of $470,000 in the Defence Production Revolving Fund 
and the Auditor General's Report for that year drew attention to this surplus because it 
was believed to be the intent of Parliament that all revolving funds surrender surpluses at 
each year-end. 

No action was taken with regard to the surplus reported in 1956 and by March 31, 
1965 there was an accumulated surplus of $1,818,000 in the Defence Production Revolving 
Fund comprising: 

Interest received under aircraft sales contracts $ 1 , 111 ,000 

Interest received on working capital advances 14, 000 

Net profit on strategic material inventory transactions: 

Disposal completed 730,000 

In process of disposal 1 , 000 

1,856,000 
Less: Warehousing and other expenses relating to inventories still on hand 38,000 

$ 1,818,000 



In the absence of specific provisions in the Defence Production Act with respect to the 
treatment of surplus, departmental officers have taken the view that surplus, whether 
derived from interest earned or profit on a strategic material inventory that has been 
completely disposed of, should be retained in the Fund as protection against possible losses 
on future transactions. 



AUDITOR GENERAL'S REPORT 33 

We do not agree with this view. If income of the type above is to be left at the dis- 
cretion of the department in a revolving fund to cover possible future losses in that fund, 
parliamentary control of public money is weakened because losses which should come under 
parliamentary scrutiny would not be adequately disclosed. Moreover, unless a surplus is 
transferred from a revolving fund to the Consolidated Revenue Fund, budgetary revenues 
are understated. 

61. Department of External Affairs missions abroad. In our 1964 Report (paragraph 49) 
reference was made to a defalcation by a locally-engaged accountant employed by the 
Canadian Mission in Canberra, Australia. Inadequate supervision of the accountant's 
work and weaknesses in the departmental system of internal financial control were the 
main factors contributing to the delay in detecting the defalcation. 

Discussions were held a year ago with departmental officers concerning these weak- 
nesses. Although the Department despatches inspection teams at regular intervals to 
examine the operations of embassies and missions, their work does not include any examina- 
tion of the accounting and financial records. In the past the Audit Office has not made test 
audits of these accounts, mainly because paid cheques, receipted vouchers and related 
documents are forwarded to the Department in Ottawa for verification. 

In our discussions it was agreed that the Department would consider setting up a 
small internal audit staff and in the meantime the Audit Office would carry out test 
examinations at a number of posts to the extent it could integrate this work with other 
assignments, thereby keeping travel overhead to a minimum. 

Following this arrangement, we made test examinations of the financial transactions 
and related administrative procedures of several embassies abroad during the past year. 
In each case detailed reports outlining the scope of the work undertaken and the results 
obtained were provided to the Department together with comments and suggestions for 
the improvement of practices and procedures found to exist in the posts visited. Action 
has been taken by the Department on the points raised. 

A matter of concern at one of these embassies has not yet been resolved. Claims had 
been received from a local shipping company covering shipments of personal effects of 
staff members returning to Canada during the years 1961 to 1964. While delay had occurred 
in clearing and paying the 1962-64 portion of the claims because proper documentation was 
not provided by the company, the accounting records of the embassy showed that the 1961 
portion, which amounted to $2,230 at the current rate of exchange, had actually been paid 
in cash in 1961. 

The shipping company maintains that it has never received any payment from the 
embassy in respect of these 1961 accounts. It states that its invoices, which are filed at 
headquarters in Ottawa, were not receipted, the signatures appearing thereon being merely 
certification by its accountant that the invoices were correct. 

The matter is under study by the Department at the present time. 

62. Indirect compensation to chartered banks. In our 1962 and 1963 Reports reference 
was made to the practice of the Government of maintaining large balances on deposit with 
the chartered banks, receiving interest only on the balances in excess of an aggregate of 



34 AUDITOR GENERAL'S REPORT 

$100 million. The view was expressed that this constituted indirect compensation to the 
chartered banks for services provided to the Crown and was contrary to section 93(1) 
of the Bank Act. 

The Public Accounts Committee in its Fourth Report 1963 advised the House that 
it was in agreement with the view of the Auditor General, and in its Sixth Report 1964 
it reiterated its belief that, if the banks are to be compensated for services provided to the 
Crown, consideration should be given to the most equitable manner in which this may 
be done, with statutory sanction being given by means of an appropriate amendment to 
the Bank Act, possibly at the time of the decennial revision in 1965 (see Appendix 1, 
item 29). 

At the 1965 session of Parliament, Bill C-102, entitled "An Act respecting Banks 
and Banking", was given first and second readings and referred to the Standing Com- 
mittee on Finance, Trade and Economic Affairs. Clause 93 of this Bill reads as follows: 

93. (1) No bank shall make a charge for cashing a cheque or other instrument drawn 
on the Receiver General or on his account in the Bank of Canada or in any other bank, or 
for cashing any other instrument issued as authority for the payment of money out of the 
Consolidated Revenue Fund, or in respect of any cheque or other instrument drawn in 
favour of the Receiver General, the Government of Canada or any department thereof or 
any public officer in his capacity as such, and tendered for deposit to the credit of the 
Receiver General. 

(2) Nothing in subsection (1) shall be construed to prohibit any arrangement between 
the Government of Canada and the bank concerning interest to be paid on any or all de- 
posits of the Government of Canada with the bank. 

(3) No bank shall directly or indirectly charge or receive any sum for the keeping of 
an account unless the charge is made by express agreement between the bank and the 
customer. 

It should be noted that subsection (2) of clause 93 of this Bill is designed to permit 
the continuation of the practice of compensating the banks indirectly for services provided 
to the Crown by keeping non-interest bearing funds (currently an aggregate of $100 
million) on deposit with them. 

63. Special Government contributions to superannuation accounts. Reference was made 
in paragraph 50 of last year's Report to the deficiency in the Public Service Superannuation 
Account which resulted when no special credits were made to the Account in respect of 
salary increases granted to civil service classes in four consecutive years as the result of 
cyclical salary reviews, although subsection (2) of section 32 of the Public Service Super- 
annuation Act, 1952-53, c.47, then read: 

There shall be credited to the Superannuation Account, as soon as possible following 
the authorization of any salary increase of general application to the Public Service, such 
amount as, in the opinion of the Minister, is necessary to provide for the increase in the 
cost to Her Majesty in right of Canada of the benefits payable under this Act, as a result 
of such salary increase. 

We were informed that the reason no such special credits were made to the Account 
as required by section 32 was that the salary increases granted to the four categories into 






AUDITOR GENERAL'S REPORT 35 

which the service had been divided for salary review purposes were not regarded as increases 
"of general application" for the purposes of the statute. 

On March 6, 1964 the Minister of Finance informed the House of Commons of a 
general policy for dealing with the deficiencies in the various superannuation accounts. 
It was proposed to write off deficiencies existing prior to the commencement of the 1963-64 
fiscal year to net debt and to amortize subsequent deficiencies arising from salary increases, 
over a five-year period commencing in the year in which the increases are authorized. In 
accordance with this policy, and pursuant to Department of Finance Vote 68e of the 
final Supplementary Estimates for 1963-64, recorded deficiencies of $524,849,000 in the 
Canadian Forces Superannuation Account and $6,333,000 in the Royal Canadian Mounted 
Police Superannuation Account were written off to net debt. Similar action was not taken 
at that time with respect to a recorded deficiency of $276,661,000 as at December 31, 1957 
in the Public Service Superannuation Account. 

When the quinquennial actuarial report on the Public Service Superannuation 
Account as of December 31, 1962 was tabled on November 12, 1964, the Minister stated 
that authority would be sought from Parliament later in the year to write off to net debt 
an additional deficiency of $110,536,000 revealed by the report, plus interest (as well as 
the previously existing deficiency of $276,661,000) and to charge the deficiencies arising 
from pay increases authorized during the fiscal years 1963-64 and 1964-65 against expend- 
iture over a five-year period commencing with 1964-65. 

It was calculated by the Department of Insurance that the deficiency in the Super- 

| annuation Account as at December 31, 1962 plus interest to December 31, 1964 would 

amount to $119,556,000 and that the additional deficiency arising from pay increases 

authorized in 1963-64, with interest to December 31, 1964, would amount to $30,506,000. 

To carry out the new policy, three Department of Finance votes were included in 
the Supplementary Estimates (D), 1964-65. Vote 24d authorized the write-off to net debt 
of $396,217,000 representing the unamortized actuarial deficiency of $276,661,000 in the 
Public Service Superannuation Account as at December 31, 1957 and the deficiency of 
$119,556,000 as at December 31, 1962, including interest to December 31, 1964 (see 
'paragraph 175). Vote 16d provided for the initial contribution to the Public Service 
Superannuation Account to amortize deficiencies resulting from the authorization of 
salary increases during the 1963-64 and 1964-65 fiscal years "each one of which was 
applicable to at least one-quarter of one per cent" of the contributors under the Act. 
A dollar vote (18d) was included to amend the Public Service Superannuation Act, the 
Canadian Forces Superannuation Act and the Royal Canadian Mounted Police Super- 
annuation Act to require that the deficiency resulting from any salary increase "applicable 
to at least one per cent" of the persons covered by the respective Acts be amortized over 
a five-year period commencing in the year in which the increase is authorized. This vote 
was withdrawn in Committee of Supply and its provisions were incorporated in Chapter 5, 
1965, "An Act to amend certain Acts respecting the superannuation of persons employed 
in the Public Service, members of the Canadian Forces and members of the Royal Canadian 
Mounted Police", assented to on June 2, 1965. 



36 AUDITOR GENERAL'S REPORT 

The amendments to the Canadian Forces Superannuation Act and the Royal Canadian 
Mounted Police Superannuation Act were made effective from January 1, 1965, thus 
providing statutory authority to charge one-fifth of the deficiencies in those accounts 
arising from pay increases in 1964-65 to expenditure of the year. 

Subsection (2) of section 32 of the Public Service Superannuation Act, as amended 
by Chapter 5, 1965, now reads: 

There shall be credited to the Superannuation Account, following the authorization of 
any salary increase applicable to at least one per cent of those persons employed in the 
Public Service who are contributors, in five equal annual instalments commencing in the< 
fiscal year in which the salary increase is authorized, such amount as, in the opinion of the ; 
Minister, is necessary to provide for the increase in the cost to Her Majesty of the benefits 
payable under this Act, as a result of such salary increase. 

Department of Finance Vote 18 of the Main Estimates, 1965-66, makes provision 
for the second annual contribution to the Public Service Superannuation Account to 
amortize the deficiency resulting from salary increases authorized during 1963-64 and 
1964-65. Unlike Vote 16d of the 1964-65 Estimates and subsection (2) of section 32 of the 
Public Service Superannuation Act which refer, respectively, to "one-quarter of one per! 
cent of the contributors" under the Act and "at least one per cent of those persons employed 
in the Public Service who are contributors", this vote reads: 

Government's contribution to the Superannuation Account as a result of the authoriza- 
tion of salary increases, each one of which was applicable to at least that percent of the con- 
tributors under the Public Service Superannuation Act, during the 1963-64 and 1964-65 fiscal 
years, as may be prescribed by the Treasury Board, in such amount as, in the opinion of the 
Minister of Finance, is necessary to provide for one-fifth of the cost to Her Majesty in right 
of Canada for the benefits payable under that Act as a result of the said salary increases — 
$10,000,000. 

The Treasury Board, by T.B. 641422 of May 27, 1965, prescribed one-quarter of 
one per cent as the percentage of contributors required for purposes of Vote 18. This was 
to take care of a situation where salary increases were not authorized to all members 
of a large group at the same time within the fiscal year, and while no single increase applied 
to as many as one per cent of the contributors under the Act, in total they did. 

Although the three superannuation Acts, as amended, authorize credits to the super- 
annuation accounts in five equal annual instalments, the full amount of the actuarial 
deficiency in each account was credited during 1964-65 and an offsetting entry was made 
to a deferred charge account. The deferred charge was then reduced by debiting expenditure 
with the one-fifth authorized for the year, leaving four-fifths to be shown as "unamortized 
portions of actuarial deficiencies" on the asset side of the Statement of Assets and Liabilities 
until charged to expenditure in subsequent years. 

By immediately crediting the superannuation accounts with the full amount of existing 
deficiencies, additional deficiencies resulting from loss of interest were avoided, but the 
practice is not consistent with the recent amendments to the governing statutes. 



AUDITOR GENERAL'S REPORT 37 

The following is a summary of the transactions in the deferred charge accounts during 
1964-65 and the position at the year-end: 

Balance, April 1, 1964, representing the unamortized portion 
of the actuarial deficiency in the Public Service Super- 
annuation Account as at December 31, 1957 $ 276,661,000 

Add: 

Public Service Superannuation Account 

Deficiency as at December 31, 1962 with interest to 

December 31, 1964 $ 119,556,000 

Deficiency arising from pay increases authorized in 

1963-64 with interest to December 31, 1964. . . 30,506,000 
Deficiency arising from pay increases authorized in 

1964-65 19,395,000 

169,457,000 
Canadian Forces Superannuation Account 

Deficiency arising from pay increases authorized in 

1964-65 67,202,000 

Royal Canadian Mounted Police Superannuation Account 
Deficiency arising from pay increases authorized in 

1964-65 5, 192,000 

241,851,000 

518,512,000 
Deduct: 

Written off to net debt (Vote 24d) 

Public Service Superannuation Account 

Deficiency as at December 31, 1957 276,661 ,000 

Deficiency as at December 31, 1962 with interest 

to December 31, 1964 119,556,000 

396,217,000 

Charged to budgetary expenditure 

One-fifth of the deficiencies arising from pay in- 
creases authorized subsequent to April 1, 1963 
Public Service Superannuation Account (Vote 

16d) 9,980,200 

Canadian Forces Superannuation Account 

(Statutory) 13,440,400 

Royal Canadian Mounted Police Superannua- 
tion Account (Statutory) 1 , 038 , 400 

24,459,000 

420,676,000 

Balance, March 31, 1965, representing the unamortized 
portions of the actuarial deficiencies in the superannua- 
tion accounts $ 97,836,000 



64. Errors in Public Service Superannuation Account pension and contribution calcula- 
tions. Comments under this heading have appeared in our Reports to the House for the 
past four years. The Public Accounts Committee in its Fourth Report 1963 noted its 
concern over the high incidence of error in the superannuation accounts and in its Sixth 
Report 1964 expressed its further concern that the matter was taking so long to be cor- 



38 AUDITOR GENERAL'S REPORT 

rected. The Committee requested the Auditor General to keep it fully informed as to the 
progress being made in this direction (see Appendix 1, item 24). 

While our test examinations in 1964-65 indicated a reduction in the number of errors 
in current calculations, they continued to disclose numerous errors made in previous years. 
We directed the attention of the Superannuation Branch to 80 cases of non-payment or 
underpayment of amounts due under Vote 667 of Appropriation Act No. 5, 1958 and the 
Public Service Pension Adjustment Act, 1959, c. 32, amounting to $22,700 up to February 
28, 1965 and to two overpayments. A detailed check by the Branch revealed 245 additional 
underpayments amounting to $30,900 to July 31, 1965 and 13 overpayments amounting 
to $1,200 to September 30, 1965. 

During the year the Superannuation Branch established a special review unit to 
check in detail the files of all contributors between the ages of 55 and 63 in order to locate 
any financial discrepancies before the contributors leave the service. There are some 
25,000 contributors in this age group. As those over 63 will be retiring in the near future, 
the Branch proposes to delay checking their files until the retirement dates. 

The number of contributors to the Public Service Superannuation Account is large 
and the numerous amendments to the Act and Regulations over the years have presented 
administrative problems. However, clerical work of this type is a necessary part of per- 
sonnel administration in all large organizations. Its accuracy is of particular importance 
to the individual contributor to the Superannuation Account who should not have to 
accept the possibility, after retirement, of a retroactive adjustment of his pension caused 
by mistakes or inadequate departmental procedures. Prompt and effective steps should 
be taken to further improve the quality of the work and to identify and correct the nu- 
merous errors made in previous years. 

The multiplicity of errors which has been the subject of comment by us in recent 
years had its origin in a directive dated June 11, 1957 from the then Minister of Finance 
which established a division of responsibility between the Superannuation Branch and 
the Comptroller of the Treasury. Under this division the Comptroller's pre-audit of benefit 
payments was discontinued and the Superannuation Branch was relieved of all re- 
sponsibility for the correctness of superannuation contribution deductions from pay. 
Accordingly, when determining annuities to be paid, the Branch does not verify contri- 
butions made in relation to salary earned which would automatically indicate errors made 
at any time during the period of service and reduce the possibility of error in calculating 
the annuity. Even with the transfer of responsibility for administration of the Super- 
annuation Branch to the Comptroller of the Treasury in December 1963, this simple 
verification was not re-introduced. 

On May 14, 1959 we made the following suggestion to the Superannuation Branch: 

Might we suggest that, if the Superannuation Account and the interests of the indi- 
vidual contributors are to be adequately protected, the Superannuation Branch should 
ascertain that a contributor's account is in order before authorizing a benefit, and that 
the procedure should include an examination of the employee's contributions in relation 
to his salary and the documents on file. This would probably require the inclusion of a 
record of contributions (current and arrears) in the Non-elective Pensionable Service 
Record (FA9). 









AUDITOR GENERAL'S REPORT 39 

This suggestion has not been accepted and in our opinion the unsatisfactory situation 
in the Superannuation Branch will not be adequately resolved until it is adopted. 

Reference was made in the 1963 Report and in last year's Report (paragraph 51) 
to the lack of verification of the correctness of contributions remitted to the Central Pay 
Division in respect of employees of various Crown corporations. We were advised last year 
that action would be taken to correct the situation. We find, however, that little progress 
has been made. Contributors' accounts in this category totalled 4,353 at December 31, 
1959 and 8,493 at December 31, 1964. By September 1965 entries in 2,335 accounts had 
been completed and verified to December 31, 1959 and in 122 accounts had been completed 
and verified to December 31, 1964. 

65. Extra-statutory death benefit and pension -payments. In two cases noted during the 
year, ex gratia payments were authorized in areas already regulated by legislation. 

Approval was given by Order in Council P.C. 1965-17/51 of January 13, 1965 to a 
recommendation that a payment of $4,984 be made on an ex gratia basis to the widow 
of a public servant, representing the difference between contributions that would have 
been required and the $5,000 death benefit that would have been payable if the deceased 
officer had been a participant under Part II of the Public Service Superannuation Act 
during his period of employment (8 months) in the public service. The man had not been 
a contributor to the Public Service Superannuation Account. 

An Order in Council, P.C. 1965-14/428 of March 12, 1965, authorized ex gratia pay- 
ments of $250 per month and $90 per month, respectively, commencing with January 1965, 
to two former Members of Parliament who were appointed to an advisory committee of 
the Government on election expenses, in recognition of the fact that while being paid 
out of the Consolidated Revenue Fund $100 for each day of service to the committee 
they became disentitled to receive their monthly pensions in the foregoing amounts 
under the Members of Parliament Retiring Allowances Act. 

66. Subsidization of Fishermen's Indemnity Plan. In last year's Report (para- 
graph 53) it was explained that two accounts, the Lobster Trap Indemnity Account and 
the Fishing Vessel Indemnity Account, are maintained in connection with this Plan which 
was introduced in 1953-54. It was pointed out that although the Plan was intended to be 
self-supporting, except for its administrative costs which are met through parliamentary 
appropriations, both accounts had recorded net deficits from their inception to March 31, 
1964. 

In 1964 we were informed by the Department of Fisheries of steps which had been 
taken, in respect of the Lobster Trap Indemnity Account, to cope with annual deficits 
which had reached a peak of $153,000 in 1962-63. These included the adoption of improved 
administrative procedures and an amendment to the regulations early in 1964 to increase 
the amount deducted for "normal" loss in the calculation of indemnity. The deficit of 
$29,000 in 1963-64 was followed by a deficit of $10,000 in the current year, the lowest figure 
since 1955-56. 

A year ago, following deficits of $81,000 in 1962-63 and $168,000 in 1963-64 with re- 
spect to the Fishing Vessel Indemnity Account, we were informed that the Department 
was engaged in a detailed study to ascertain the extent to which factors other than weather 



40 AUDITOR GENERAL'S REPORT 

might have been operative during this period and to determine what further changes in 
the regulations are practicable or to what extent the premium rates should be revised. 
The study was recently completed by the Department's Economics Service and its findings 
are under consideration. 

The deficit of $71,000 in the Fishing Vessel Indemnity Account for 1964-65, while 
substantially less than that for the preceding year, was the third highest since the inception 
of the Plan. 

67. Free accommodation for international commission without parliamentary sanction. 
Vote 5 of the Department of Fisheries makes provision annually for Canada's share of the 
expenses of international commissions named in the Estimates. 

In addition to the payments made under this authority, it has been the practice to 
provide free accommodation in Crown-owned premises for a number of the international 
commissions. An exception was the International Commission for the Northwest Atlantic 
Fisheries which in May 1963 had entered into a three-year lease at a rental of $200 per 
month for accommodation in a government-owned building at Dartmouth, N.S. In June 

1964, when, due to rising costs, the Commission was considering increases needed in the 
contributions of member countries, the Governor in Council by Order in Council P.C. 
1964-10/862 of June 18, 1964 cancelled the rent payable during the remainder of the lease. 

It is our opinion that subsidy in the form of free accommodation in all such cases 
should be drawn to the attention of Parliament in the annual Estimates. 

68. Questionable charge to Vote 1 of the Department of Industry. During the year a 
firm sought assistance from the Department of Industry to carry out a development 
program to determine the feasibility of a new process for treating various types of metallic 
ores. The firm had been unable to obtain assistance from any other government department 
or agency but as the project was considered a promising one deserving of support, the 
Treasury Board in January 1965 approved in principle the granting of assistance up to 
a maximum of $88,550 as the Crown's share of the total estimated cost of $177,330. How- 
ever, at the time there was no appropriation to which assistance of this type, which was 
not defence oriented, could be charged. As an alternative the Board decided to authorize 
the entry into a contract in the estimated amount of $19,560 representing the amount of 
Crown assistance required for 1964-65, in consideration for which the Department would i 
obtain a report on the work done on the project for the period January 15 to March 31, j 

1965. The firm billed the Department $18,935 and this amount was charged to Department 
of Industry Vote 1, Departmental Administration (Professional and Special Services). 

It is questionable whether expenditure of this type, which is actually to assist in 
advancing technological capability of Canadian industry, is within the ambit of the 
Department of Industry administration vote. 

69. Federal losses from bankruptcies. Our 1962 Report drew attention to the increased 
cost of supervision of bankruptcies caused by the disclosure of irregularities in the ad- 



AUDITOR GENERAL'S REPORT 41 

ministration of estates by a number of trustees in bankruptcy and to the increase in the 
rate of levy on estates that had been introduced to meet the additional expenses. 

In October 1964 the Province of Quebec appointed a commission of inquiry to deter- 
mine the effect on the revenue of the Province of bankruptcies occurring between Novem- 
ber 1, 1959 and November 1, 1964. The report of the commission, which was submitted 
on July 30, 1965, estimated that the Province had lost approximately $5.5 million in 
revenue during the period as a result of bankruptcies and stated that "fraud and dishonesty 
in one way or another penetrated deeply into a large portion of bankruptcies and liquida- 
tions". The commission recommended, among other things, changes in the Bankruptcy 
Act, R.S., c.14, and in the administration of bankruptcy, including the establishment of 
a "permanent inquiry service" either under section 3(5) of the Bankruptcy Act which 
provides that: 

The Superintendent may engage such accountants or other persons as he may deem 
advisable to conduct any inspection or investigation . . . 

or under some other legislative provision. 

No amount has yet been established to indicate the extent to which federal revenue 
has been lost as a result of these irregularities. 

70. Living allowances to federally-appointed judges. In our 1962 Report reference was 
made to the payment of living allowances to judges appointed as conciliators or arbitrators 
on boards established to deal with disputes affecting employers and their employees. We 
expressed the opinion that a daily rate of $60 appeared excessive as a living allowance and 
could be regarded as including an element of remuneration, contrary to subsection (1) 
of section 39 of the Judges Act, R.S., c. 159. This subsection prohibits the payment to 
a judge of any remuneration in addition to his judicial salary "for any duty or service, 
whether judicial or executive, that he may be required to perform for or on behalf of the 
Government of Canada or the government of any province", subsection (3) of the same 
section simply permitting payment of "such moving or transportation expenses and 
living allowance as the Governor in Council or the Lieutenant-Governor in Council, 
as the case may be, may fix by general or special order". 

The Public Accounts Committee was of the opinion that a daily rate at this level 
could be regarded as including an element of remuneration and recommended in its Fourth 
Report 1963 that if additional remuneration was to be paid to judges, the approval of 
Parliament for such payment should be obtained. The Committee took notice of a subse- 
quent appointment at $100 per day and reiterated the recommendation in its Fourth 
Report 1964 (see Appendix 1, item 7). 

The Minister of Justice, in a letter to the Chairman of the Public Accounts Com- 
mittee dated August 13, 1964, referred to the fact that the allowance was subject to income 
tax and gave as his view that it did not contain an element of remuneration. He went on 
to say that even if an element of remuneration was included, it was not prohibited by the 
Judges Act and "no further approval of Parliament is necessary". 



42 AUDITOR GENERAL'S REPORT 

Two additional circumstances have now been noted which support the opinion that 
the amount of these allowances is such that an element of remuneration is included therein 
and consequently that they are contrary to existing legislation covering payments to 
judges: 

1. A judge was appointed to act as an Industrial Inquiry Commission to inquire into the 
industrial situation arising from the running of certain trains through terminals in 
Ontario and Alberta. An allowance of $100 per day plus actual out-of-pocket trans- 
portation expenses was authorized and he was paid $13,200 in allowances in the year 
under review, although his duties were performed substantially at his place of residence. 

2. Certain judges who had been granted allowances of $60 per day while acting outside 
their normal judicial duties were granted remission of the additional income tax re- 
sulting from receipt of the allowances. 

71. Municipal winter works incentive program. The federal Government is signatory 
to agreements with all of the provinces and the Yukon and Northwest territories under 
w r hich it undertakes to pay a percentage of direct labour costs incurred on site on accepted 
works projects undertaken during the winter months by municipalities, Indian reserves 
or bands, and unorganized settlements. The federal Government has been party to similar 
agreements with the provinces since 1958, the terms having been modified over the years 
to provide for a wider scope of acceptable projects, an increase in the maximum incentive 
payable towards municipal buildings constructed, and an increase in the percentage 
of direct labour costs payable under special circumstances. Incentive payments by the 
federal Government from the inception of the program to the end of the year have amounted 
to $136,741,000. 

The prime purpose of the federal payments is to encourage municipalities to create 
additional winter employment by postponing or advancing work scheduled for summer 
into the winter period. Embodied in the agreements are certain conditions designed to 
ensure that the maximum benefit from the additional employment created accrues to 
persons who would be unemployed in the absence of special winter works projects. 

A condition of the agreements is that final claims for incentive payments by the federal 
Government will be audited by the provincial auditor or an auditor designated by him. 
In some of the provinces the audit carried out in compliance with this condition included 
an examination of the records of the municipalities and contractors involved, an essential 
procedure in determining whether the terms of the agreement are being complied with, 
whether the charges are legitimate and whether the purposes of the agreement are being 
achieved. In other provinces, checks were being made of the records of the municipalities 
but not of the contractors. In Saskatchewan and Prince Edward Island, however, little 
more than a check of the arithmetical accuracy of the claim and the authority for the pro- 
jects was being made. The certificate of the provincial auditor was based primarily on the 
certificates (attesting to the direct payroll costs incurred) provided by the relevant 
municipalities and contractors, without any examination being made of the underlying 
records of the municipalities or contractors. In these cases there is reason to doubt whether 
all charges are legitimate and whether the conditions of the agreements have been met. 



AUDITOR GENERAL'S REPORT 43 

A condition introduced in the 1963-64 agreements is that the provinces will permit 
access by authorized officials of the Government of Canada to records, documents and files 
of the province and its municipalities as may be deemed necessary for the audit of direct 
payroll costs claimed under this program. Although a signatory to the agreement, the 
Province of Quebec has indicated its reluctance to an examination being made of the records 
of its municipalities by members of the Audit Office on the grounds that these records are 
already being subjected to extensive examination by the provincial auditor. As a result, 
we are not examining the records of municipalities in this Province. 

Our test examinations of provincial and municipal records and of reports of pro- 
vincial auditors indicate that the effectiveness of the program in providing benefits to those 
whom it was designed to benefit is somewhat less than its potential and that there is need 
for a more specific spelling-out of the terms of the agreements to set straight some ques- 
tionable practices which have developed: 

1. Instances were noted where regular or permanent employees of a municipality were 
employed on projects without being replaced at their regular jobs by men drawn from 
the pool of unemployed, as required by the agreement. In these cases, the incentive 
payment, instead of being diverted to the unemployed, becomes an additional subsidy 
to the municipality. 

2. Many projects carried out by contractors have a labour content which includes super- 
visors, technicians and engineers, including sometimes the principals of the firm, whose 
earnings are eligible for reimbursement because they possess special skills and their 
services are essential to the project. Few of these persons can be considered to be actually 
seeking employment and, therefore, very little of the reimbursement related to their 
earnings is directed to the unemployed. 

3. The federal incentive payment is 50% of the direct payroll costs of projects except for 
those carried out in "designated areas" and in areas determined by the Minister of 
Labour to be areas of high winter unemployment, where the rate is 60%. This incentive, 
with few exceptions, is supplemented by the provinces, the provincial incentive varying 
between 25% for most of the provinces to 40% for one province. Since the combined 
federal and provincial contributions account for from 75% to 100% of payroll costs, 
the burden on the municipalities can sometimes be small or even non-existent. In these 
circumstances, there is a tendency for municipalities to undertake 'makework' projects, 
usually of high labour content, which might otherwise never be undertaken, merely to 
provide work for its residents. 

4. Some unorganized settlements and a few municipalities have financed their share of 
the cost of projects by assessing each worker a percentage of his earnings. Where this 
situation has been encountered in the audit the amount assessed has been disallowed as 
a cost eligible for reimbursement on the grounds that the payroll costs do not represent 
the municipality's actual outlay for labour expended directly on a project. 

5. The agreements stipulate that overtime work, except in emergencies, should be ex- 
cluded, the purpose being, of course, to encourage either the employment of more 
workers during the regular working hours or extension of the period of employment. 
'Emergency' is not defined and some contractors carried out overtime work for reasons 
such as to complete a project within the prescribed period of the program, or to com- 
plete a project in order to commence another undertaking. The payment of an incentive 
towards overtime incurred under these circumstances contributes little to the benefit 
of the unemployed. 



44 AUDITOR GENERAL'S REPORT 

6. A condition of the agreements frequently not complied with is one requiring that the 
facilities of the National Employment Service, where available, be used in hiring 
workers for accepted projects. As a result it was almost impossible to determine whether 
workers engaged on projects were, in fact, previously unemployed. Three main factors 
contributed to the failure to recruit in this manner. First, many urban municipalities are 
required under terms of union agreements to re-employ members of the union for winter 
works projects before other unemployed may be recruited. Second, many municipalities 
and contractors have a policy of employing temporary or laid-off personnel before 
providing employment for others. Third, in agricultural areas, municipalities employed 
farmers who, being not insurable under the Unemployment Insurance Act, are fre- 
quently not registered with the National Employment Service. Where, in order to 
comply with this requirement, municipalities or contractors attempted to obtain the 
approval of the National Employment Service in the above circumstances, they were 
usually refused on the grounds that the bona fides of the unemployment status of these 
workers cannot be established and it would be tantamount to rubber-stamping em- 
ployment transactions in which the National Employment Service did not participate. 

7. A property comprising a monastery and surrounding land belonging to a religious 
order is incorporated as a municipality. As such, it is entitled to have eligible local 
projects carried out and to be reimbursed the normal incentive payment under the 
program. Included in the labour costs forming the basis of this municipality's claim 
in connection with the construction of an auditorium, and ruled admissible charges, 
were the wages paid to the religious brothers who worked on this project. 

8. Instances were noted on projects carried out under contract where the wages shown on 
the claim were at the rates charged to the municipality by the contractor and not at 
the rates actually paid by him to his employees. 

In addition to the questionable practices noted above, our review of the working 
paper files of the provincial auditors who carried out a detailed audit of claims revealed 
instances of fraudulent and irregular practices being disclosed. These practices include the 
payment of wages to employees for longer hours than were actually worked, the reporting 
of wages on claims at hourly rates which were more than were actually paid, the inclusion 
of fictitious employees on project payrolls and the inclusion on project payrolls of municipal 
employees who w T ere engaged on other than winter works projects. 

72. Electronic data processing system abandoned. In 1964-65 the Unemployment 
Insurance Commission, with Treasury Board approval, instituted a program whereby 
unemployment insurance benefits for the Prairie Region would be paid by mail from a 
centralized claims payment centre located in Winnipeg. The program was to be implemented 
by using electronic data processing equipment to replace the existing mechanical tabulating 
equipment in use in the six payment centres in the Region. The Commission's preliminary 
feasibility study completed in May 1964 indicated a potential saving from this operation 
of over $100,000 a year. 

This installation, a prototype for similar centres in each of the Commission's regions 
across Canada, was expected to be capable of processing a potential load of 90,000 active 
claims in the Prairie Region. The equipment installed was that recommended by the 
manufacturer of its main component unit who, in addition to guaranteeing that its per- 
formance would meet the Commission's requirements, undertook to do the necessary 
systems and programming work. 



AUDITOR GENERAL'S REPORT 45 

The installation was not a success; it was operated at 10% of its rated capacity and 
the supporting clerical staff requirements exceeded expectations. The computer operation 
was abandoned and the equipment returned to the supplier at the end of June 1965. 

The failure of this equipment was due to faulty planning by the Commission and 
the manufacturer. In the haste to make it fully operational before the 1964 winter claim 
load began, the choice of equipment appears to have been on the basis of availability 
rather than suitability, with the result that the computer unit installed was not suited 
to the complexity of the operation. Insufficient time for proper programming was also a 
factor. 

The total cost to the Unemployment Insurance Commission of this regional payments 
centre in terms of equipment, rental, additional salaries, overtime, travel expenses and 
other identifiable costs is estimated at $200,000. The manufacturer had guaranteed that 
the system would produce initial payments commencing August 17, 1964 and be fully 
operational by September 1, 1964 and sent several programmers to Winnipeg in an effort 
to achieve this purpose. No claim has been made by the Commission against the manufac- 
turer for any part of this cost. 

Recommendations concerning procurement practices in the leasing of automatic data 
processing equipment were made by the Royal Commission on Government Organization 
in Report 4 on "Paperwork and Systems Management". 

The case underlines the importance of manufacturers being required to indicate in 
precise terms the guarantees they offer against failure of their equipment to meet specified 
performance. 

73. National Defence administrative regulations and practices. The Public Accounts 
Committee in its Sixth Report 1964 requested the Auditor General to inform the House of 
Commons of any case where changes in the Armed Forces administrative regulations 
appear to be inadequate to bring about the desired results or where abuse and waste of 
public funds develop (see Appendix 1, item 15). The following matters continue to be 
unsatisfactory : 

1. removal expenses — mobile homes. — We stated in last year's Report (paragraph 56 
(2)) that the Department was preparing an amendment to the regulations to include 
specific directions with respect to the movement of mobile homes and their contents. 
We understand that these regulations have been prepared but have not yet been for- 
warded to the Treasury Board for approval. 

2. uneconomical mode of transportation. — The travel regulations covering the use of 
privately-owned motor cars by servicemen for temporary duty travel and for trans- 
porting themselves and their dependents to new places of duty, etc., were amended 
effective March 1, 1963 by substituting all-inclusive mileage rates for the previous 
allowances which were the equivalent of hypothetical expenses calculated on the cost 
of the journeys by public transportation facilities. The object of this change was to 
simplify the method of calculating reimbursement, without increasing the expendi- 
tures. In the course of our audit of travelling and moving expense claims involving long 
distances, we found that the allowances paid under the amended regulations were 
generally in excess of the allowances the servicemen would have received prior to the 
amendments. 



46 AUDITOR GENERAL'S REPORT 

As was pointed out in last year's Report (paragraph 56 (4)), members on duty 
travel may at the discretion of the commanding officers use their motor cars for their 
own convenience and are entitled to claim mileage allowances to cover transportation, 
meals and accommodation. An example was given where a saving of $400 would have 
resulted had five men travelled as a group by rail instead of each using his own motor 
car. In 1964-65, nine naval officers, on the authority of their commanding officers, 
travelled on duty separately by car from Halifax to Victoria and return to attend a 
course of instruction in Victoria for the period January to May 1964. Expenses claimed 
by the officers for the trip, comprising the mileage allowance and charges for excess 
baggage and ferry tolls, totalled $5,282. An estimated $4,600 could have been saved 
had they travelled by service aircraft. 

We have been informed that a comprehensive evaluation of the present allowances 
is being undertaken by the Department. 

3. transportation on leave allowance. — Departmental regulations provide for 
transportation allowance of two and one-half cents for each mile travelled in excess of 
500 miles to assist servicemen financially who proceed to their homes on leave. The 
length of the journey is calculated by using railway competitive mileage charts for the 
portion of the trip served by railways, and actual mileage by the most direct route for 
the remaining portion. A test examination disclosed that since the introduction of 
special economy rates by the railways, the amounts paid for long journeys are in excess 
of actual rail fares. The matter of the relationship between the transportation allowance 
and the now lower rail fares was accordingly drawn to the attention of the Department. 

74. Questionable charge to Vote 15 of the Department of National Defence. As a Canadian 
contribution to the International Biological Program under the sponsorship of the World 
Health Organization and at the request of McGill University, the Department of National 
Defence provided the repair ship HMCS Cape Scott to transport a medical expedition to 
Easter Island. The additional costs borne by the Royal Canadian Navy appropriation 
(Vote 15) as a result of this operation are estimated to be $215,000. 

In our view this expenditure is in the nature of a contribution to an outside organiza- 
tion and therefore it is questionable whether it falls within the ambit of a defence appro- 
priation. 

75. Bobcat Program for development of army vehicles. On November 19, 1964 the 
Special Committee of the House of Commons on Defence met with officials of the Depart- 
ment of Defence Production to discuss among other matters a statement furnished by the 
Department to the Committee concerning the Bobcat Development Program. The text 
of the discussion and statement will be found in Minutes of Proceedings and Evidence 
No. 21 of this Committee. 

The final settlement of the Bobcat Development Program during the past year 
brought its total cost to $9,252,908. The program was a failure. No serviceable vehicles 
were produced and the Government has since entered into a contract for the supply of 
961 United States vehicles at an estimated cost of $32 million. 

The history of the Bobcat Development Program starts ten years ago when a contract 
was placed in 1954 for the development of a mild steel prototype of an infantry carrier 
to replace World War II Universal Carriers which were rapidly becoming obsolete. The 
vehicle was delivered to the Army in the fall of 1956 and cost $1,010,856. 



AUDITOR GENERAL'S REPORT 47 

When the project was reviewed in 1956 it was decided to develop a family of light 
tracked armoured vehicles known as the Bobcat, for use as personnel, field artillery, 
infantry weapons and cargo carriers, all having the same basic tracked chassis. About the 
same time the United States Army which had knowledge of this proposal decided to 
produce its own armoured personnel carrier with essentially the same main characteristics 
as the Canadian vehicle. However, the U.S. Army did not propose to meet its several 
requirements with a common chassis as in the Bobcat family. 

The Bobcat Program called for development in three phases. The contract for the 
first phase covering the development and supply of three light tracked chassis at an 
estimated cost of $1 million was approved by the Treasury Board in November 1956. 
The contract was dated January 2, 1957 but on March 29, 1957 it was amended to provide 
for the supply of the three chassis complete with bodies. This significant change in the 
contract was not approved by the Treasury Board until November 1957 when an addi- 
tional $250,000 was provided for the project. Further amounts of $350,000, $200,000 and 
$165,000 were approved by the Treasury Board in June 1958, October 1958 and April 1959 
to cover estimated additional costs. There was usually a lapse of about five months between 
the receipt of the contractor's request for additional funds and its processing through 
the Departments of Defence Production and National Defence before submission to the 
Treasury Board. The vehicles were delivered to the Army in October 1958, but it was not 
until April 1959 that sufficient funds were provided to finalize the contract at a total cost 
of $1,933,670. 

In June 1958 the Chiefs of Staff proposed the initiation of the second phase of the 
development program for the production of six hard steel pilot models including production 
drawings at an estimated cost of $1,310,000. This was later submitted to the Minister of 
National Defence for his approval and to the Treasury Board. This submission and an 
alternative proposal by the contractor to telescope the development and pre-production 
stages into a production order contract were considered by the Treasury Board on January 
23, 1959. However, the Board recommended to Cabinet on January 27, 1959 that there 
should be no departure from the present concept of the orderly development of the Bobcat 
vehicle including the procurement of a further six pilot models. 

The Treasury Board on April 24, 1959 authorized entry into a contract for the assess- 
ment of engineering tests on the three existing prototypes which, notwithstanding its 
previous recommendation to Cabinet, included the production of one armoured hull of a 
personnel carrier, the design and manufacture of an unarmoured load carrier body, provi- 
sion of special parts, tools, test rigs and instrumentation, reports, specifications and 
literature, and provided $452,000 to initiate the project. In June 1959 the contractor 
advised that a study of the work required by the Army indicated that funding would 
have to be increased by $804,000. On October 29, 1959 the Treasury Board authorized 
the amount required and made provision for the contract to be amended to include the 
production of one armoured vehicle complete with armoured hull, a modified version of 
the prototype design steering and suspension units, the engineering and production of one 
vehicle set Timken planetary final drives including the drawings, specifications and spares 
necessary to support vehicle tests, and to provide such tooling, test rigs, and instrumenta- 
tion as may be required. These amendments were incorporated into the contract on 



\ 



48 AUDITOR GENERAL'S REPORT 



November 13, 1959. In January 1960 the contractor informed the Department of Defence 
Production that an additional $644,000 would be required to complete the contract. This 
amount was provided by the Treasury Board in June 1960, by which time the Board had 
authorized expenditures of SI. 9 million. The armoured personnel carrier was delivered to 
the Army in October 1960 and was found to be 2,000 pounds overweight and in need of 
product improvement before it could be accepted for field use. About the same time the 
contractor explained that funds originally intended to complete drawings and specifications 
had been used to cover additional changes in the scope of the actual development work as 
it progressed, and that a further $75,000 was required to complete drawings and specifica-i 
tions, which was approved by the Treasury Board on October 28, 1960. The final cost of 
the work under this contract totalled $1,972,692, bringing expenditure on the program to 
this date up to $4,917,218. 

On February 11, 1961 the Cabinet authorized the procurement of 500 Bobcats at an 
estimated cost of $25 million on the following basis: 

(a) a pilot production run of 20 vehicles to be carried out at this time at an estimated cost 
of $3.7 million (included in the above total) to cover the vehicles, tooling and other 
related costs; and 

(6) on completion of the pilot production, tenders to be invited for the remaining vehicles 
on a firm fixed price. 

By this time the U.S. Army had its armoured personnel carriers in service, whereas i 
the Department of National Defence was not yet in a position to go into full scale produc- 
tion because only one vehicle had been delivered which was overweight, required further 
product improvement and had not been proven operationally. 

When the Treasury Board authorized the contract referred to under (a) above, the 
view was expressed that a tight control over specifications governing work under the con- 
tract should be maintained at all times. For this purpose the Board requested that an 
interdepartmental committee continue to screen all proposals involving product improve- 
ment before approval was sought to amend the provisions of the contract, and that a 
member of the Treasury Board staff participate in the work of the committee so that the 
financial implications of product improvement would be kept constantly to the fore. 
The interdepartmental committee was formed on April 10, 1961 from which date it 
held regular monthly meetings. 

The contract for the pilot production run, dated April 13, 1961, provided separate 
estimates of expenditure under each of the following headings: product improvement, 
production tooling, plant rearrangement, and vehicle production, with the aggregate 
liability of the Crown under the contract being limited to $3.7 million. The contract also 
provided that the contractor was to advise the Minister well in advance if any of the 
estimated expenditures were likely to be exceeded, and unless such new estimates of 
expenditure were approved by the Minister any expenditures incurred by the contractor 
causing the original estimates to be exceeded were not to be reimbursed to the contractor, 
but at no time were the new estimates to increase the liability of the Crown beyond the 
ceiling price of $3.7 million. 



AUDITOR GENERAL'S REPORT 49 

The contractor's progress report, giving the financial position of the contract at 
December 31, 1962, submitted to the interdepartmental committee, revealed that expen- 
ditures under two headings of the contract had been exceeded. A subsequent report giving 
the financial position at March 31, 1963 revealed over-expenditures under all headings 
of the contract except for plant rearrangement. In August 1963 the contractor indicated 
unwillingness to continue the contract unless additional funds were provided by the 
Crown. In September 1963 the interdepartmental committee reported the position to the 
Treasury Board at which time the contractor's reported costs to July 26, 1963 were as 
follows : 

Contractor's Excess of 

Estimated reported cost over 

expenditure costs estimate 



Product improvement $ 1,096,516 $ 1,238,328 $ 141,812 

Production tooling 520,570 621,996 101,426 

Plant rearrangement 32,636 32,285 (351) 

Vehicle production 2,050,278 2,848,430 798,152 



$ 3,700,000 $ 4,741,039 $ 1,041,039 



The contract was terminated in December 1963. In February 1964 the contractor 
informed the Department of Defence Production that, after making an allowance of some 
$42,000 for post-termination costs, the total costs had exceeded the payments received 
from the Crown by about $1,636,000. The contractor proposed that the excess costs 
should be shared equally with the Crown on the grounds that "the full implications of 
the proposed improvements were not appreciated when the contract was let and accordingly 
there was a considerable under-assessment of the effort required and costs involved. The 
original armoured prototype, on which the concept of the contract was based, certainly 
did not measure up to the specifications written for and applied to the new vehicles" and 
experience had shown that, instead of a product improvement program, this phase of the 
work involved a redesign of about 90% of the machine. The contractor made formal claim 
for reimbursement of $799,612 additional costs and was prepared to absorb all post- 
termination costs including those involved in the scrapping of the vehicles. 

Notwithstanding the fact that the Crown had no legal obligation to pay the con- 
tractor's claim (a position which the contractor himself acknowledged) the Department 
considered that there had been a change in the scope of the work and recommended to 
the Treasury Board that the claim be settled and this was negotiated and paid in an amount 
of $735,621 in April 1964. In the opinion of the Audit Office this constituted an ex gratia 
payment which should have been disclosed as such in the Public Accounts. 

Non-productive expenditure of public funds of this magnitude should be subjected 
to the most searching inquiry to determine how it might have been minimized or contained. 
Officials of the Department of Defence Production told the Special Committee on Defence 
that while it was difficult to determine precisely all the factors which resulted in the 



50 AUDITOR GENERAL'S REPORT 

termination of the Bobcat Development Program, it could be said with some certainty 
that the following were contributing factors : 

1. The scope of the program was not adequately defined at the early stages of the program 
and consequently the program was inadequately financed. The necessity of re-funding 
and re-approval at various stages throughout the program resulted in lengthy delays. 

2. The design requirements for the Bobcat were altered a number of times over the course 
of the program which necessitated changes in the development of the vehicle although 
this is not abnormal in a development program and was probably not a major consid- 
eration in the ultimate lack of success. 

3. Similar developments were undertaken in the United Kingdom and in the United 
States and at the time of cancellation of the Bobcat fully operational vehicles were 
available from the United States at considerably less than the projected cost of the 
Bobcat and with much earlier delivery for Canadian Army use. The United States 
vehicle had by that time also been adopted by a number of other NATO countries. 

76. Additional cost resulting from failure to exercise option to renew agreement for the 
supply of natural gas. An agreement for the supply of natural gas to Camp Wainwright, 
Alberta, at 21 cents per thousand cubic feet, contained a clause giving the Minister of 
National Defence the option of renewal for a further period of four years upon termination 
of the agreement on January 2, 1964. 

Instead of exercising the option, a new agreement was entered into for the supply 
of gas at 23 cents per thousand cubic feet, plus a service charge of $100 per month. Based 
on the year's consumption, the additional cost to the Crown through failure to exercise 
the option is approximately $3,900, which over the life of the agreement will amount to 
approximately $15,000. 

77. Bomb Toss Computer. In order to meet the requirements of existing bombing 
techniques, a Bomb Toss Computer was selected in 1959 for installation in the new CF-104 
aircraft, the first of which was scheduled for delivery in March 1961. A contract with a 
Canadian manufacturer for work preliminary to the production of the Bomb Toss Com- 
puter in Canada was completed at a cost of $332,000. 

On May 25, 1960, although the drawings for the Computer were still in preparation, 
a contract was entered into with the same manufacturer for the purchase of production 
inventory material for the manufacture of the first 50 units. The estimated cost of this 
material was $885,000. 

In the meantime there was a trend developing away from the technique requiring 
the use of the Bomb Toss Computer and in August 1960 it became known that another 
type of weapon would very likely become available which would not require the use of 
this Computer. 

In September 1960 the contract was extended to cover the procurement of production 
inventory material for an additional 188 units at a cost estimated at $3,481,000. The 
reasons given to the Treasury Board for the need to extend the contract at this particular 
time were that there was a very tight delivery requirement to meet the aircraft delivery 



AUDITOR GENERAL'S REPORT 51 

schedule and that cost savings and a higher Canadian labour and material content would 
be achieved by purchasing production and spares support inventory concurrently. 

In November 1960 it became necessary to equip the CF-104 aircraft with Dual Timers 
for the delivery of a new type of weapon. These Dual Timers, two of which were required 
in each aircraft, were being produced in the United States. 

At this time it was considered that the Dual Timer did not duplicate the service 
provided by any of the other weapons systems, nor did it detract from the original purpose 
or operational value of the existing systems. It was therefore decided that the CF-104 was 
to be equipped with the two weapons delivery devices. 

In February 1961 the contract for the Computer was amended to reduce the purchase 
of production inventory material from that required for 238 units to that required for 
168 units, and at the same time the contract was further amended to include the purchase 
of 35 completed units on a cost plus ceiling price basis from the Canadian manufacturer, 
and a further 35 completed units at a lot price from the Canadian manufacturer's asso- 
ciated company in the United States. 

In June 1961 the Royal Canadian Air Force discontinued pilot training for the type 
of weapon the Bomb Toss Computer was designed to deliver, a decision which cast further 
doubt on the future of the Computer. Nevertheless, it was decided that "the Computer 
be left in the aircraft to give flexibility of weapon employment for the future", and in 
September 1961 the contract for the Computer was further amended to provide for the 
manufacture of 168 additional Computers at a unit price of $21,933. 

This last amendment increased the amount of the contract to $5,931,000 covering the 
following : 

Purchase of 35 complete units from the Canadian contractor on a cost plus ceiling 

basis which averaged $28,500 per unit $ 999,000 

Purchase of 35 complete units manufactured by the United States associate of the 

Canadian manufacturer at a lot price which averaged $30,300 per unit 1 ,061 ,000 

Purchase of 168 units from the Canadian manufacturer at a price of $21,933 per 

unit 3,685,000 

Qualification, sample testing and modification kits 186,000 

$ 5,931,000 



Although deliveries under the contract are complete, the contract has not yet been fully 
settled and changes may occur in the above figures. 

By July 1962 it was concluded that the Bomb Toss Computer had severe limitations 
and would require extensive modifications if it were to be used. It was also found that the 
Dual Timers, which cost approximately $1,400 per aircraft compared with $21,900 per 
aircraft for the Computer, could provide an accuracy at least as good as that which could 
be obtained by the Bomb Toss Computer. In January 1963 it was decided to remove the 
Bomb Toss Computers from all aircraft and to place them in long term storage, and in 
April 1964 it was decided to dispose of the Computers together with all tooling, test equip- 
ment and spares. 



52 AUDITOR GENERAL'S REPORT 

Other contracts were involved in the Bomb Toss Computer program, the overall cost 
of which was $7,210,000 as follows: 

Preliminary work $ 332,000 

Acquisition of 238 units — detailed above 5,931,000 

Tooling and special production test equipment 229,000 

Support spares 718,000 

$ 7,210,000 



78. Excessive payments to municipal school board. In June 1957 the Department of 
National Defence entered into an agreement with a municipal school board for the provi- 
sion of schooling to dependent children residing in married quarters at an R.C.A.F. 
station. 

The Department agreed to provide capital assistance towards the cost of construction 
of the school, and to pay a share of the annual operating expenses proportionate to the 
number of service children enrolled. Clause 4(c) of the agreement stipulated that (a) 
payments in respect of the operating expenses less provincial grants would be adjusted 
at the end of each school year and any balance owing would be paid by the Department 
upon presentation by the school board of a statement of the actual operating expenses, 
and (b) the school board would refund "any moneys that were in excess of the operating 
expenses less provincial grants for the preceding school year". 

The files reveal that although the Department had been billed each month since 
September 1956, the effective date of the agreement, for its share of the gross operating 
expenses, at no time since that date had an adjustment been made in accordance with 
clause 4(c). As a result, refunds due the Department in July 1963 were estimated to be in 
excess of $200,000. Having failed to induce the school board to refund the amount overpaid, 
the Department took steps in October 1963 to avoid current overpayments by reducing 
payments to 50% of the operating expenses. The reduced payments approximate the 
Department's share of the current operating expenses less provincial grants, but make 
no provision for recovery of the amount already overpaid for the years 1956 to 1963. 
The Department is continuing to seek a satisfactory settlement. 

79. Cancellation of Canada-United States radar site construction program. In 1958 the 
decision was taken to construct "gap filler" radar sites to improve the Continental Air 
Defence System with the installations to become operational by July 1963. The Canadian 
and United States authorities agreed that the Royal Canadian Air Force would be re- 
sponsible for the cost of providing the sites, buildings and services, and the United States 
Air Force would be responsible for the cost of supplying and installing the radar equip- 
ment. In order to reduce the period of vulnerability, it was decided that the construction of 
sites and the development of the new radar equipment would be carried out concurrently. 

The United States authorities considered that, with minor modifications, the required 
radar units could be developed from radar sets then in inventory. However, by early 1963 
the contractor to whom the work had been assigned had not been able to produce satis- 
factory equipment and as a result the sites did not become operational. As it did not then 



AUDITOR GENERAL'S REPORT 53 

appear likely that equipment meeting the required specifications could be developed and 
installed within the period during which the facilities were deemed essential to the air 
defence plan, the program was cancelled by mutual agreement. 

The cost to Canada of proceeding with its commitments under this program is expected 
to aggregate $3.5 million. This is largely accounted for by consultants' fees, property 
expenses and construction contracts which have amounted to $3.1 million. Additional 
costs will include further property expenses, amounts pertaining to termination of leased 
communication facilities (for one-third of which Canada was liable), and loss incurred 
on the final disposal of the generators purchased specifically for the gap filler program. 
The costs will in turn be reduced by whatever amounts can be realized by Crown Assets 
Disposal Corporation from the sale of sites, buildings, equipment and materials and by 
the value of materials taken into inventory by the Royal Canadian Air Force. 

80. Additional cost of constructing runway and access taxiways at R.C.A.F. Station, 
Chatham, N.B. In December 1961 the Treasury Board authorized entry into a contract 
for the construction of a runway and access taxiways at the R.C.A.F. Station, Chatham, at 
an estimated cost, as amended, of $1,060,000, based on estimated quantities and firm 
unit prices. Adjustments to the contract to cover extra work and additional quantities 
at a cost of $642,000 and increased haulage costs of $160,000, increased the contract price 
to $1,862,000. 

In April 1963 the contractor submitted a claim for additional costs of $506,000 
resulting from a truckers' strike, late acquisition of lands, gravel compaction tests, extra 
excavation and fill, change in specifications for gravel and asphalt and completing 
asphalt work late in the season. With the approval of the Treasury Board the claim was 
settled during the year for $476,000, summarized as follows: 

Equipment rental, labour and overhead, standby charges $ 234 , 000 

Additional costs resulting from renegotiated unit prices 93,000 

Payment for abandoned work on blending of fines 60,000 

Additional work 37,000 

Use of additional plant 15,000 

Cost of maintaining campsite during strike 14, 000 

Expropriation delays 12,000 

Financing costs 11 ,000 

$ 476,000 



In addition, the Treasury Board authorized payment of $11,000 for reprocessing by 
the supplier of asphalt primer which failed to produce satisfactory results because of the 
cold, wet conditions prevailing in the period during which the work had to be performed. 

The final cost of the contract was therefore $2,349,000. 

81. Cost of terminating an agreement and lease of married quarters, R.C.A.F. Station, 
Grostenquin, France. Agreement was reached with the North Atlantic Treaty Organization 
to reorganize No. 1 Air Division, Royal Canadian Air Force, stationed in Europe. This 



54 AUDITOR GENERAL'S REPORT 

involved moving the squadrons of 2 Fighter Wing from Grostenquin, France to Zwei- 
brucken and Baden Soellingen in Germany and closing R.C.A.F. Station, Grostenquin. 

As there would be no requirement for married quarters after the Station was closed, 
the Governor in Council on March 30, 1965 approved the termination of a lease under 
which the Department had been renting and giving rental guarantees in respect of 443 
housing units and 17 school classrooms at nearby St. Avoid. 

In consideration for termination of the lease and guarantee agreement, which was 
effective until June 30, 1967, the Department paid the lessor the sum of $785,000. 

82. Cost of terminating leased communication facilities. In accordance with an announce- 
ment by the Minister of National Defence on March 9, 1964, four radar stations of the 
Pine Tree Line were closed down and contracts covering rental of on-base telecommunica- 
tion and ancillary equipment were terminated. Termination charges paid under these 
contracts amounted to $309,500 of which Canada's share was $254,500. 

83. Electrical relays found unsuitable. In 1958 a contract was awarded to a United 
States firm for the supply of 3,400 electrical relays for the Royal Canadian Air Force at 
a cost of $75,000. When put into service the relays were found to be unsatisfactory and 
some 3,100 were returned to the supplier for correction. Tests made on reworked relays 
disclosed that they were unsatisfactory and could not be successfully adapted to their 
intended use. It was subsequently learned that in attempting to produce a better product, 
the supplier had deviated from the configuration of the eight original prototype relays 
that had met all the Air Force requirements and on the strength of which the contract 
had been awarded. 

In 1961 the supplier was requested to make a financial settlement but he contended 
that while he was prepared to continue to assist in resolving the problem of putting the 
relays into effective use, he was under no obligation to refund the purchase price. Legal 
action against the company was not taken as the eight original prototype relays had all 
been lost or discarded and thus there was no evidence to support the case. 

Some 3,000 relays in the hands of the supplier were subsequently reported to Crown 
Assets Disposal Corporation for disposal and they were purchased by the supplier for a 
negotiated price of $610. 

84. Pension awards effective at early age. In previous Reports reference was made to 
the number of servicemen being retired at early ages, in some instances under 30. Although 
the amounts of annuities are not large due to the short periods of service, the potential 
cost is substantial because of the relatively longer life expectancy. During the year, 391 
servicemen aged 40 and under were retired with immediate annuities aggregating $472,000 
annually. In 1963-64 there were 286 servicemen in this category retired with immediate 
annuities and in 1962-63 the number was 201. 

The Department has been reviewing the existing provisions of the Canadian Forces 
Superannuation Act and has been considering the merits of providing deferred annuities 
similar to those available to civilian employees but does not contemplate proposing any 
changes until a more detailed study embracing the implications of the Canada Pension 
Plan has been completed. (See Appendix 1, item 20.) 



AUDITOR GENERAL'S REPORT 55 

85. Discretionary awards of Service pensions. In our Reports for 1963 and 1964 (para- 
graph 65) we noted that in determining pension awards every possible consideration is 
given to the welfare of the individual serviceman, and that it is sometimes questionable 
whether a reasonable balance is struck between fairness to the serviceman on the one hand 
and economy of public funds on the other. In the year under review similar cases were noted 
as follows : 

1. In three instances servicemen with slightly more than the minimum period of service 
were awarded full pensions, being retired as medically unfit. Information on file indi- 
cated that this reason was of secondary importance and that, had the primary reasons 
been recognized, contributions amounting to some $11,000 would have been repaid 
instead of annuities having a present value of about $85,000 being awarded. In addi- 
tion, each of the servicemen received the special benefit paid to members released 
because of integration of the Forces. Pending release, the servicemen attended extensive 
courses in electronic data processing and programming and retired to continue in that 
field of employment in the public service and in industry. In each case the new employ- 
ment was begun on the first day of terminal leave which was approximately three 
months before release date. Had the servicemen been granted voluntary releases, they 
would have received a return of pension contributions as noted above, with no entitle- 
ment to the special benefit. 

2. Four servicemen were awarded full pensions, having been retired compulsorily as 
medically unfit, with annuities having a present value of $129,000 and special benefits 
amounting to $14,260. The first, a serviceman 32 years of age with 13 years service, 
over-weight for four years, presumably was unable to regain normal fitness. In the second 
case, although the Service medical consultant did not consider that the officer's condi- 
tion warranted a release on medical grounds, he felt that departure from the Service 
to satisfy his desire to return to farming together with adjustment of his marital prob- 
lems would bring rapid improvement. In the third case, the serviceman did not require 
hospitalization and active therapy and it would appear that the reason for the ter- 
mination of engagement was unsatisfactory service. The fourth serviceman, aged 26 
years, was released as disabled after serving ten years although the real reason appeared 
to be that he was not advantageously employable due to restricted learning ability and 
a desire to be released to accept civilian employment. 

3. Two servicemen of equivalent rank with comparable service and military records were 
retired with materially different benefits. In one case, an airman was recommended 
for release on medical grounds in spite of the fact that a personal assessment report at 
the same time recommended his promotion. He was awarded benefits having a present 
value of $22,000. In the other case, a leading seaman was considered disabled by the 
medical authorities, but the Service Pension Board determined release to be voluntary 
and he was given a return of contributions of $2,060. 

The Department is endeavouring to achieve a system under which the entitlement to 
all pensions will be specific. If this were possible it would eliminate the considerations of 
the Pension Board which is now responsible for establishing reasons for release. However, 
no action has yet been taken to revise the present system as recommended by the Public 
Accounts Committee (see Appendix 1, item 21). 

86. Questionable period of service included when determining pension benefit. During 
the year six cases were noted in which officers and men released on pension had been 



56 AUDITOR GENERAL'S REPORT 

credited with pensionable service dating in one case from the age of nine and in five other 
cases from ages eleven and twelve. 

File documentation in respect of the early service was fragmentary, statutory declara- 
tions being accepted. In response to an Audit Office query about the officer whose service 
began at age nine, departmental officers replied that while enlistment at this age was 
contrary to regulations, the officer had not been discharged as being under age and con- 
sequently they were satisfied that he had served. In addition, they noted that the review 
board had agreed that the time claimed was in fact valid and since the officer had elected 
to contribute to the Canadian Forces Superannuation Account he was eligible to count 
the service as pensionable. 

In our opinion the acceptance of such service for pension purposes is unrealistic and an 
abuse of the pension privilege. 

87. Unemployment Assistance. The Unemployment Assistance Act, 1956, c. 26, 
provides for payment by the federal Government to the provincial and territorial 
governments of 50% of the cost of providing assistance to persons unemployed and 
in need. As early as 1958 our Report made reference to ambiguities in the text of the 
Act and to the resulting difficulties in administration. Subsequent Reports drew attention 
to further difficulties in administration that had come to our attention. These difficulties 
arose mainly from the inadequate definition of shareable costs and from the relationship 
between this program and other programs of social assistance. In our 1961 and 1963 
Reports we recommended that consideration be given to the overall co-ordination of all 
programs involving assistance to individuals to avoid overlapping and duplication and to 
achieve greater equity in the treatment of individuals as well as to reduce the cost of 
administration. 

The Public Accounts Committee in its Fourth Report 1963 concurred in the view that 
Parliament should give consideration to redrafting the Unemployment Assistance Act 
so as to state more clearly the objectives and methods of achieving them and to remove 
ambiguities in the present law which have resulted in varying interpretations. The Com- 
mittee also suggested that consideration be given to including with Unemployment 
Assistance other existing programs to assist the needy so as to provide better co-ordination 
of federal-provincial efforts in this field (see Appendix 1, item 4). 

During 1965 discussions took place between the federal and provincial governments 
with a view to introducing a comprehensive assistance plan which would embody assistance 
to all persons in need, including those presently eligible for social assistance in such forms 
as unemployment and old age assistance and blind and disabled persons allowances. 

During the year the following two additional questionable items of assistance were 
noted in provincial claims against the federal Government : 

overlapping of assistance. — Section 8 of the agreement entered into with the 
provinces under the Act permits federal sharing of any additional relief payments made to 
recipients of other forms of social assistance, including Unemployment Insurance, in the 
circumstances where the basic assistance is not adequate to meet all of the recipients' needs. 
In one province Unemployment Insurance benefits received for the first two weeks of entitle- 1 
ment have been disregarded as income in the determination of need. 



ice 



AUDITOR GENERAL'S REPORT 57 

fully-employed recipients of assistance. — Assistance was being paid in one province 
to persons fully employed, to enable them to obtain housekeeping services where the spouse 
was unavailable or incapable of participating in family responsibilities. 

88. Provincial payments to federal hospitals under the Hospital Insurance and Diagnostic 
Services Act. In previous years doubt has been expressed as to whether the terms of the 
agreements with the various provinces under the Hospital Insurance and Diagnostic 
Services Act, 1957, c. 28, relating to payments to federal hospitals, were being adhered to 
in all cases. 

In our 1963 Report reference was made to the refusal of the Province of British 
Columbia to pay Miller Bay Indian Hospital for insured services to insured residents 
when the accounts were not accompanied by a certificate from the nearby Prince Rupert 
General Hospital that they had no accommodation available, despite the fact that the 
Indian hospitals had been included in the Hospital Insurance Agreement with the Province 
in recognition of their role in providing general hospital care to Indians. Reference was 
also made to reimbursement at per diem rates set by the Province below cost and below 
the corresponding rates at the Prince Rupert General Hospital, and to the fact that the 
Province deems some of the care given insured patients unnecessary and will not pay 
for it. 

The Province of British Columbia has now agreed to accept a maximum of 4,400 
patient days per year for which payment will be made to the Miller Bay Indian Hospital 
without a certificate from the Prince Rupert General Hospital as to the non-availability 
of accommodation. However, the number of patient days for insured services during 1964 
exceeded the allowable limit by 25% and payment for the excess amounting to $13,000 
has been refused by the Province. 

In our 1964 Report (paragraph 68) we drew attention to the situation in Alberta 
where, although the rate payable to federal hospitals has been fixed by provincial regula- 
tions, the Province has for several years paid less than this rate on the grounds that the 
lengths of stay in federal hospitals are considerably above the provincial average. 

We also noted that the accounting in federal hospitals generally was not in accordance 
with the Canadian Hospital Accounting Manual which provides a basic accounting system 
for purposes of the Act; that accounting and medical records in some Indian hospitals could 
not be said to be adequate for preparation of the necessary financial returns required by 
the agreements with the provinces; and that it was not always possible to determine rates 
by reference to comparable non-federal hospitals because of the specialized nature of many 
federal institutions. We recommended that steps be taken to bring federal hospital account- 
ing in line with requirements where necessary and that revisions to the agreements should 
be made to the end that all the terms may be fully complied with. 

In the circumstances it is still not possible in all cases to appraise the adequacy of 
settlements being made by the provinces for services provided under the agreements to 
insured patients in federal hospitals. 

89. Grant to International Society of Soil Mechanics and Foundation Engineering. The 
National Research Council with the approval of the Treasury Board made a grant of 
$35,000 to the International Society of Soil Mechanics and Foundation Engineering to 



58 AUDITOR GENERAL'S REPORT 






assist in defraying the costs of a conference of the Society being held in Canada. The grant 
was paid in four instalments, a portion being charged to the appropriations for 1964-65 
and the remainder charged to the 1965-66 appropriations. 

The Conference was conducted by the National Research Council in the name of the 
Society. However, the manner in which the Conference's financial affairs were administered 
raises several questions. Payment of the grant was made by cheques drawn to the order of 
the Sixth International Conference of Soil Mechanics and Foundation Engineering and 
delivered to and negotiated by members of the staff of the National Research Council 
who were members but not officers of the Society. The cheques were deposited in a local 
bank and the proceeds used for payment of expenses of the Conference by means of cheques 
signed by the staff members. 

A budget of $125,000, subsequently increased to $170,000, was established for the 
Conference. The funds needed over and above the registration fees, sale of conference 
papers and the Council's grant of $35,000 were sought in the name of the Society from 
industry and other interested persons, the letter from the Society asking that cheques be 
made payable to the "Receiver General of Canada (Soil Mechanics Conference, 1965)". 
The cheques were deposited in a trust account in the Consolidated Revenue Fund and, 
since they represented donations to the Crown, receipts were issued by the National 
Research Council so as to render the payments eligible for deduction by the donors from 
income that is taxable. The amounts collected in this way together with the other revenues 
were, with few exceptions, deposited in the Consolidated Revenue Fund before being 
transferred by the Council to the local bank in order to meet the conference expenses of 
the Society. The exceptions represented amounts such as fees and proceeds from sales 
received in the form of currency and which were deposited directly in the local bank 
account. 

We have no adverse criticism of the manner in which the National Research Council ; 
and its officers discharged their responsibilities to the Society under these arrangements. 
We do find, however, that arrangements of this type transgress many of the principles 
governing effective control of public funds. They permit the mixing of public funds with 
funds raised by and belonging to a private society and which in our opinion should be ; 
administered by that society in its own name and on its own responsibility. 

90. Departmental practices which lack statutory sanction. In its Eighth Report 1964 the 
Public Accounts Committee recommended that four practices being followed by the Cus- ! 
toms and Excise Division of the Department of National Revenue should receive statutory 
sanction if they are to be continued (see Appendix 1, item 37). These four practices concern: ' 

(a) release of goods under customs collector's permission; 

(6) sales of goods unclaimed at Customs; 

(c) duties and taxes on surplus United States Government property sold in Canada; and 

(d) determination of "sale price" for sales tax purposes. 

Three additional departmental practices which lack statutory sanction were noted 
in our 1964 Report, as follows: 

paragraph 70 — remission of duties on certain motor vehicles and parts; 






AUDITOR GENERAL'S REPORT 59 

paragraph 72 — refunds of duties and taxes on estimated basis; and 

paragraph 73 — refund of duty paid on goods diverted to use other than that for which they 
were imported. 

There were no amendments to the Customs Act during the year and the seven depart- 
mental practices referred to above as lacking statutory sanction were continued throughout 
the year. However, an amendment to the Customs Act in 1965-66 (1965, c.16) gave 
statutory sanction to items (a) and (c) above. The amendment also provided statutory 
sanction to the practice referred to in paragraph 70 of our 1964 Report dealing with "re- 
mission of duties on certain motor vehicles and parts". 

91. Settlement of sales tax on percentage of total sales. In previous Reports instances 
have been cited in which the Department of National Revenue has authorized the computa- 
tion of sales tax on less than the actual sale price contrary to the provisions of the Excise 
Tax Act. The Public Accounts Committee in its Eighth Report 1964 (see Appendix 1, 
item 37) included the following recommendation with respect to this practice: 

that an amendment be made to the Excise Tax Act designed to give statutory sanction to 
the existing scheme of valuation followed by the Department of National Revenue in 
authorizing manufacturers by regulation to compute the sales tax on less than the actual 
sale price. 

During the year another method of assessing sales tax came to our attention which in- 
dicates that proposals designed to give statutory sanction to the collection of sales tax on 
other than the basis required by present legislation must be carefully examined if a loss 
of revenue is to be avoided. 

In 1962 the Department became aware of an unsatisfactory situation with regard to 
exemption certificates covering tax-exempt sales of oil niters for internal combustion engines 
sold to farmers, loggers and fishermen. Following an investigation the Department ascer- 
tained that approximately 50% of the oil filters manufactured in Canada for use in internal 
combustion engines were used under tax-exempt conditions. It therefore ruled, contrary 
to the provisions of the Act, that henceforth the sales tax of 11% would be applied to 
only 50% of the total sales of each manufacturer on the understanding that exemption 
certificates would not be required nor would the Department consider any refund claims 
with respect to such filters. 

Under this arrangement each manufacturer is expected to remit to the Receiver 
General 11% tax on only 50% of all his sales of filters to unlicensed dealers. 

With effect from June 14, 1963, engines used in the logging industry were deleted from 
the schedule of exemptions. This, of course, reduced the number of oil filters used under 
tax-exempt conditions but, due to pressure of work, the Department had not yet been 
able to carry out the necessary investigation to determine a new percentage of sales on 
which the tax is to be applied. 

This matter came to our attention when a routine Excise Tax audit resulted in an 
additional assessment of S3, 605 which took into consideration changes made in the Excise 
Tax Act in June 1963. This additional assessment was reduced by $3,193 because of the 
departmental ruling issued prior to the changes in the Excise Tax Act and which is still 
in effect. 



60 AUDITOR GENERAL'S REPORT 

92. Refund of sales tax on materials used in construction of certain buildings. In para- 
graph 71 of the 1964 Report attention was directed to section 47 A of the Excise Tax Act, 
1963, c. 12, which reads as follows: 

Where materials have been purchased by or on behalf of 
(a) a school, university or other similar educational institution for use exclusively in the 

construction of a building for that institution, or 
(6) any organization for use exclusively in the construction of a building for that organi- 
zation that is to be used exclusively or mainly as a public library operated by or on 
behalf of that organization on a non-commercial basis, 
and the tax imposed by Part VI has been paid in respect of those materials, the Minister 
may, upon application by such institution or organization in such form as the Minister 
prescribes made to the Minister within two years from the time the materials were pur- 
chased, pay to such institution or organization an amount equal to that tax. 

In order to simplify the arrangements by which the refund could be granted, an 
Order in Council was passed which established a formula designed to determine the 
"approximate" value of taxable material in a building and to "estimate" the amount of 
the refund that may be claimed. This formula continued to be the basis for refunds 
throughout the year under review. 

Section 47A directs the Minister to pay an amount equal to the tax that has been 
paid and there does not appear to be any authority in the Excise Tax Act to pay a refund 
based on an estimated taxable value of materials incorporated into a building. 

93. Crown-owned houses located at Coutts, Alberta, declared surplus to requirements. 
Although there had been no reduction in the staff of the Port of Coutts, four residences, 
two double garages, one pump house and the land on which these buildings were located 
were declared surplus to requirements by the Customs and Excise Division, Department of 
National Revenue. These buildings were originally constructed at a cost of approximately 
$61,000 in 1953 for the use of Customs-Excise officers. 

Three of the houses and lots have been sold for $12,600 by Crown Assets Disposal 
Corporation. The fourth property was offered for sale but only one offer of $2,000 was 
received and this was not accepted. The price obtained for the properties sold may be in 
line with current values but a loss of this magnitude suffered by the Crown on properties 
built only twelve years previously raises the question of the justification for the construe- I 
tion of the houses in the first place. 

94. Drawback paid on goods destroyed after release from Customs. In the 1964 Report 
(paragraph 76) we questioned the right of the Governor in Council to authorize under 
authority of the Customs Act a drawback of all or part of the duties paid on goods which 
are destroyed after release from Customs, when section 22(6) of the Financial Administra- 
tion Act expressly forbids the Governor in Council to remit the tax under the same cir- 
cumstances. 

On the recommendation of the Department, the Governor in Council has since re- 
voked the offending regulation but no steps have been taken to recover the amount of 
$2,525 which was remitted illegally. 






AUDITOR GENERAL'S REPORT 61 

95. Commissions for issue of provincial hunting and fishing licences and permits. Certain 
customs and immigration officers have been granted permission by their respective depart- 
ments to issue provincial hunting and fishing licences and permits when requested to do 
so by provincial governments and to retain as remuneration any commissions paid to 
them. 

In British Columbia federal officers issued fish and game licences amounting to 
$250,000 in 1963. The commission on this amount was $25,000, some officers receiving 
over $400. At one port, where thirty federal officers are employed, licences valued at 
$115,000 were issued, resulting in commissions of $11,500. 

Since these officers are members of the federal public service employed on a full-time 
basis, it would appear that commissions earned should be paid to the Crown. 

96. Customs and Excise laboratory. The primary function of the laboratory is to identify 
and classify by chemical or phj^sical means various materials described in the Customs 
Tariff, the Excise Act and other Acts of Parliament administered by the Department of 
National Revenue and to advise departmental officials on the drafting and enforcement 
of regulations where chemical or related scientific information is involved. 

In 1964-65 the laboratory incurred costs of approximately $120,000 in analyzing 
some 9,700 samples of which more than 6,000 came from the Customs Appraisers Branch. 
This number, however, does not include opinions given verbally because of the need for 
quick decisions. 

A number of the cases involved appeals against assessments of duties but in such cases 
the Department does not follow the usual practice of requiring that an appeal be accom- 
panied by a deposit, to be returned if the appeal is sustained. Other cases for which no 
charge is made originate in requests from importers or exporters through the Customs 
Appraisers Branch, a number of which result in direct benefit to the importers or exporters. 

Consideration should be given to the institution of appeal fees and to the adoption 
of a tariff of fees to be charged for professional services rendered to importers and exporters. 

97. Part-time Customs and Excise Enforcement Officer. A Customs and Excise officer 
is usualty a full-time employee of the Customs and Excise Division of the Department of 
National Revenue and his duties include the enforcement of the provisions of the various 
Acts administered by that Division. 

At one small port on the border the sole representative of the Department is a Customs 
and Excise Enforcement Officer who is employed on a part-time basis. This officer has 
extensive business interests in the areamostly catering to the travelling public. A de- 
partmental investigation based on complaints resulted in this officer being severely rep- 
rimanded by the Department for failure to properly enforce the provisions of the Customs 
Act. There has been a notable improvement in the officer's work, the files indicating an 
increase in the revenue collections at this small port and in the issue of tourist exemptions, 
temporary admissions and automobile and pleasure craft permits. Increases have also 
taken place in the number of general receipts issued covering abandonment of alcoholic 
beverages and cigarettes. 



62 AUDITOR GENERAL'S REPORT 

In our view there is a conflict of interest in this situation and as the importance of a 
border crossing point is not necessarily measured by the volume of traffic passing through 
it, it would be preferable were the interests of the Department looked after by a full-time 
customs officer who has no business interests in the area being served. 

98. Sight entries. In certain cases when, due to lack of information or documentation, 
it is not possible to prepare final customs entries covering imported goods at the time of 
their release from Customs, the collector may accept what is known as a "sight entry" 
accompanied by a deposit of a sum of money sufficient, in the judgment of the customs 
officer, to pay the duties. The importer is subsequently required to complete a "perfecting 
entry" within a time limit set by the collector. This procedure is provided for by sections 
24 and 25 of the Customs Act, R.S., c. 58: 

24. (1) If the importer of any goods, or the person authorized to make the declaration 
required with regard to such goods, makes and subscribes a declaration before the collector 
or other proper officer, that he cannot, for want of full information, make perfect entry 
thereof, and takes the oath in such cases provided, then the collector or officer may cause 
such goods to be landed on a bill of sight for the packages and parcels thereof, by the best 
description that can be given, and to be seen and examined by such person and at his ex- 
pense, in the presence of the collector or other proper officer, or of such other officer as is 
appointed by the said collector or other proper officer, and to be delivered to such person, 
on his depositing in the hands of the collector or officer a sum of money sufficient in the 
judgment of the collector or officer to pay the duties thereon. 

(2) If the importer does not complete a perfect entry within the time appointed by the 
collector, the money so deposited shall be taken and held as duty accruing on such goods, 
and shall be dealt with and accounted for accordingly. 

(3) In all cases where such goods are purchased or consigned a sufficient invoice therefor 
as provided in section 26, shall be produced within the said time appointed by the collector, 
and in default thereof the importer is liable to a penalty equal to the amount so deposited 
with the collector recoverable in any court of competent jurisdiction. 

25. Such sight entry may be made as aforesaid and the goods may be delivered, if such 
importer or person as aforesaid makes oath or affirms that the invoice has not been and can- 
not be produced, and pays to the collector or proper officer aforesaid a sum of money suffi- 
cient in the judgment of such collector or officer to pay the duties on such goods; and such 
sum shall then be held as duties. 

The Act requires that when a perfect entry is not completed within the time set by 
the collector, the deposit shall be accounted for as duty accruing on the goods. In our 
opinion this precludes any amendment of the time set by the collector after the time has 
expired. 

In practice, extensions beyond the period approved by the collector are often granted 
even without a request from the importer and refunds of deposits or parts of deposits are 
made by the collector after expiry of the time limit. Penalties are rarely assessed against 
importers when documents are not produced in order to perfect the entry. 

We are of the opinion that refunds after expiry of the time limit are illegal and failure 
to assess penalty when an entry is not perfected may result in loss of revenue as it is 
generally accepted that in such cases the deposit based on the original appraiser's estimate 
of the duties was insufficient to cover the duties. 



AUDITOR GENERAL'S REPORT 63 

99. Bonded warehouses. The trend in the Customs and Excise Division of the Depart- 
ment of National Revenue is to effect speedier release of goods to importers by deferring 
payment of duties at time of entry. Similarly, the requirement that a customs officer be 
present whenever goods are being released from a bonded warehouse has been dispensed 
with by eliminating the dual lock procedure, as recommended by the Royal Commission 
on Government Organization. These concessions benefit the importers but also involve a 
calculated risk in the collection of the revenue. 

When the customs surcharge was imposed in 1962, a number of importers made use 
of bonded warehouses in order to delay payment of customs duty in the hope that by the 
time the goods were actually required, the surcharge might have been removed. This 
increased use of such facilities inevitably involved the Department in additional super- 
vision costs. It is not uncommon for goods to remain, with the approval of the Governor in 
Council, in customs bonded warehouses for periods in excess of five years. 

In these days of rapid communication and transportation the need for bonded ware- 
houses may not be as great as it once was. We asked the Department whether any con- 
sideration had been given to amending the Customs Act in order to eliminate customs 
bonded warehouses for storage of imported goods for lengthy periods of time without 
payment of duty and if it was in a position to establish whether the licence and special 
service fees collected from proprietors of warehouses were sufficient to meet the depart- 
mental costs of supervising and controlling these warehouses. 

The Department was of the opinion that elimination of bonded warehouses could 
restrict current trade practices and large volume buying by importers. It also pointed out 
that the bonding of warehouse establishments allows an individual to operate a bonded 
warehouse in conjunction with a retail sales outlet permitting duty free merchandise to 
be sold for export. 

The Department informed us that the regulations and procedures respecting customs 
bonded warehouses are under review and that it proposed to conduct an administrative 
cost analysis of warehousing operations in order to establish a new scale of licensing fees. 

100. Possible loss of excise tax. The excise tax on automobiles was repealed on June 21, 
1961 and tax paid on automobiles in dealers' stocks on that day was refunded. In the fall 
of 1963 the accounting transactions of one dealer who had received a refund of tax amount- 
ing to $16,700 figured rather prominently in a court case in which it was disclosed that he 
had been in the habit of overstating car inventories in order to deceive the car manu- 
facturer who financed the inventories. 

Payment of the refund claim by the Department was based solely on figures supplied 
by the manufacturer and certified by the car dealer in question. 

Although the Department took no action at the time these disclosures became public 
knowledge, it did review the file at our request during the year and came to the conclusion 
that there is a possibility that fifteen vehicles on which excise tax of $2,375 had been 
refunded were not actually in the inventory on June 21, 1961, having been disposed of 
prior to that date. The Department explained that it would now be extremely difficult to 
establish definitely what vehicles were actually on hand on June 21, 1961 because the 



64 AUDITOR GENERAL'S REPORT 

departmental officer who approved the claim is now deceased, the claimant's franchise 
agreement with the automobile manufacturer has been cancelled, the records of the 
claimant, now in bankruptcy, are not readily available and, furthermore, are not considered 
accurate. No attempt has been made to effect recovery. 

101. Charitable donations. Section 27(1) (a) of the Income Tax Act, R.S., c.148, provides 
that a taxpayer may deduct from net income the aggregate of gifts to charitable organi- 
zations in Canada up to 10% of net income. In the taxation year 1963 — the last year for 
which statistics are available — charitable donations claimed as deductions amounted to 
$308,431,000 in the case of individuals and $41,700,000 in the case of corporations. 

The word "charitable" is not defined in the Act and the Department in administering 
this section relies on Common Law which recognizes "charity" as comprising four principal 
activities: the relief of poverty, the advancement of education, the advancement of religion, 
and other activities beneficial to the community not falling under any of the preceding 
heads. 

Many charities are well known to the taxing authorities and receipts issued for dona- 
tions are generally accepted without question when attached to a taxpayer's return in 
support of a deduction for a donation he has made to a charitable organization. There is 
no requirement that charitable organizations be registered with the Department but in 
practice provision is made for formal approval which an organization may seek if it so 
wishes. Such approval is, of course, a necessity in the case of organizations which are not 
known and whose receipts might not be accepted by the taxing authorities in the absence 
of prior approval. The Department maintains, for its own use, a list of approved charitable 
organizations which currently includes over 1,200 names. 

A perusal of this list quickly gives the impression that all of the organizations exist 
for worthy purposes, but it is not so readily apparent that all are concerned with poverty, 
education, religion or purposes beneficial to the community. For obvious reasons assistance 
given personally by a taxpayer to a poor family for the education of one of its children 
cannot be recognized as charity for the purposes of the Income Tax Act. However, an 
equivalent amount given by the same individual to a professional association to which 
he may belong to be used to recognize scholastic achievement by a student of the asso- 
ciation is regarded as a charitable donation. 

Also included on the list are organizations which are set up in Canada for the collection 
of funds to be used for worthy purposes in other countries. It might be questionable whether 
these should be regarded as "charitable organizations in Canada" within the meaning of 
section 27(1) (a) of the Act. 

Charitable organizations which are incorporated must file annual income tax returns 
including financial statements, but once any organization has been recognized the Depart- 
ment exercises no regulatory control, nor is there any other authority in Canada which 
exercises control such as requiring the filing of annual returns accompanied by financial 
statements giving a report of charitable activities. In the absence of such a control it is 
possible for organizations to change their character or even to cease serving any useful 
purposes, yet their receipts might continue to be accepted as evidence of genuine dona- 
tions to bona fide charitable organizations. 



AUDITOR GENERAL'S REPORT 65 

Consideration should be given to the setting up of adequate controls over the many 
charitable organizations now recognized. 

102. Remission of income tax on per diem allowances. Per diem allowances ranging from 
$50 to $60 were granted to each of the members of the Board of Trustees of the Maritime 
Transportation Unions. The income tax normally payable on these allowances was re- 
mitted by the Governor in Council under authority of section 22 of the Financial Admin- 
istration Act. 

Each of the departmental submissions to the Governor in Council and each of the 
remitting Orders in Council referred to the per diem allowances as remuneration and went 
on to state that any remuneration payable to the members of the Board of Trustees of 
the Maritime Transportation Unions would have been tax-exempt if the appointments had 
been made under the Inquiries Act, R.S., c.154. In actual fact, section 5 (1) (b) of the 
Income Tax Act grants to a person who was appointed or whose services were engaged 
pursuant to the Inquiries Act exemption from tax of "travelling or personal or living ex- 
pense allowances" paid under authority of the Treasury Board. In other words, it is ex- 
pense allowances paid to persons appointed under the Inquiries Act and not remuneration 
allowances to those persons which are exempt from income tax. 

This mis-statement of fact in the submissions and the resulting Orders in Council in 
no way affects the validity of the remissions granted and the remissions themselves are 
regarded as being in order. 

It is a matter of concern, however, when the Governor in Council is provided with 
incorrect information which may have had a bearing on the decision to grant the remissions 
requested by the Department of Labour. In the absence of amending Orders in Council 
which would indicate that the Governor in Council had been informed of the erroneous 
information provided, the matter is drawn to attention. 

103. Inadequate accounting and financial control procedures, Fort Smith, N.W.T. 
The Department of Northern Affairs and National Resources has established head- 
quarters for the administration of the Mackenzie District of the Northwest Territories at 
Fort Smith. The headquarters for one of the three regions into which the District has been 
divided for administrative purposes is located in the same community. 

In 1964 we made a preliminary study of activities centered at Fort Smith to obtain 
first-hand information for the framing of a program of audit for the combined district and 
regional office, and to reach a decision regarding the extent to which the expansion of 
departmental activities in the North now required field audits in the area. An examination 
in June 1965 disclosed the following serious deficiencies in the accounting and financial 
control procedures: 

1. Internal control over cash receipts was lacking in that one employee was permitted to 
receive and record receipts, maintain or have access to accounts receivable ledgers and 
to have custody of the pre-numbered forms used for billing purposes. 

2. Departmental invoices were not subject to review and approval by unit heads before 
release. Collection and follow-up action respecting accounts receivable was inadequate. 
Numerous outstanding accounts dated back to 1961 and at March 31, 1965 accounts 



66 AUDITOR GENERAL'S REPORT 

outstanding for more than one year totalled $23,300, which was $8,100 in excess of 
items in the same category at the preceding year-end. Credit for additional services 
had been extended to debtors with long overdue accounts. 

3. The Fort Smith office performs accounting and collection services for the Department 
of National Health and Welfare. Unpaid invoices in respect of services performed for 
patients at a local clinic and at nursing stations at other points are turned over to the 
Department of Northern Affairs and National Resources for recording and collection 
action. Since no control account was being maintained over the accounts receivable 
ledger, individual ledger cards could be misplaced or lost without this becoming evident. 
Although the recording of receipts was up to date at the time of the audit, billings had 
not been posted since the end of April 1965. Even on this basis, a listing of the out- 
standing accounts totalled over $25,000. It was evident that appropriate action was not 
being taken to effect collection of old accounts and comparatively few individuals to 
whom credit was extended for medical services were settling their accounts. 

4. The Department has been authorized to sell electric power, produced from its own 
generating plants or from facilities operated by the Department of Transport, to 
private consumers in remote locations where alternative sources of supply are not 
available. Administration, meter readings, billings and collections for this service in 
areas other than Fort Smith have been largely delegated to area officers. In our opinion, 
centralized control over these matters is desirable and the necessary steps should be 
taken to effect this at the regional headquarters. 

5. Billings and collections for sewer and water services at Fort Smith have been handled 
by the Department, although the municipality was expected to assume responsibility 
in the matter on July 1, 1965. Meter readings and billings were found to be considerably 
in arrears. In June 1965 private consumers had been billed for services only to February 
28, 1965. Even with the arrears in billings, outstanding accounts amounted to more 
than $17,000 on June 15th. Internal accounting control was inadequate in that there 
was no control account over the individual accounts and the employees concerned with 
billing and the handling of cash had access to these accounts. We were later informed 
that the municipality did take over the service on July 1, 1965 and that the outstanding 
accounts had been reduced to $1,160. 

6. Motor vehicle licence plates issued initially from Fort Smith are sold at a number of 
locations. No accounting of unsold plates on hand at the year-end is made to Fort 
Smith and we were informed that many are sold to collectors for a nominal amount 
after the expiry date. The lack of internal control does not provide assurance that all 
revenue from this source is brought to account. 

7. Although instructions are that a departmental officer take a physical inventory of 
liquor at the Fort Smith store at the end of each month, our June examination showed 
that the latest such count had been made on March 31, 1965. 

8. The settlement of outstanding accounts payable was considerably in arrears, with 
delays of several months being not uncommon. 

On October 18, 1965 we were informed by the Department that a serious view had 
been taken of our report and that steps to meet the criticisms had already been initiated. 
The Department advised us that 

the majority of the problems result from insufficient staff in Fort Smith. Many employees 
unfortunately have had to be hired on a casual basis and consequently our turnover has 
been quite high. For some months now we have been working to correct this situation 
through recruitment of senior financial officers. 






AUDITOR GENERAL'S REPORT 67 

Although operations at Fort Smith are unique in that both district and subordinate 
regional activities are centered at the one location, the conditions revealed by our exam- 
ination indicate clearly that the audit coverage of northern points, which has been very 
limited, will have to be extended as soon as this can be arranged. 

104. Inadequate control of stores at northern locations. In its report on "Northern 
Affairs", the Royal Commission on Government Organization pointed out that the relative 
isolation of the North made it essential that departmental operations be integrated in a 
number of matters, including supply and materials management. 

One of the first areas to be considered for integrated operations was Frobisher Bay, 
N.W.T., where a committee, on which all government departments and agencies with 
interests in the area were represented, reviewed common services and recommended 
divisions of responsibility. One conclusion reached was that the Department of Northern 
Affairs and National Resources should take over the operation of a consolidated stores 
set-up to meet requirements for supplies. The planning in that regard initially contemplated 
the procedure becoming effective in November 1964, but although April 1965 was later 
regarded as a more practicable date, consolidation has not yet been possible. The primary 
reason for the situation is that preliminary surveys showed that the control and manage- 
ment of the Department's own stores was such that the value of the inventory could not 
readily be determined, and in this circumstance the Department was in no position to 
undertake the added responsibility of management of stores for other departments. 
Furthermore, an assessment of the situation made it apparent that management and 
control had been inadequate for several years. 

Stockpiling of stores is necessary in the North for a number of reasons, including the 
short shipping season, transportation difficulties and climatic conditions. In 1960 the 
Department sought authority to operate a revolving fund for the purpose of acquiring and 
managing stores of its Northern Administration Branch. Vote 574 of Appropriation Act 
No. 6, 1960, provided this, with the amount to be charged to the fund at any time not to 
exceed $500,000. Of this amount, $300,000 was allocated for operations centered at Fort 
Smith and, effective April 1, 1962, $200,000 for Frobisher Bay. Almost immediately it 
became apparent that the amount provided for Frobisher Bay was inadequate. The value 
of stores on hand (including a substantial quantity of obsolete and unusable items) which 
was to be a first charge against the revolving fund was in excess of the amount authorized, 
even after a decision was made not to bring certain materials within the fund. Neverthe- 
less, action to increase the fund or at least to have the obsolete and unusable items deleted 
was not taken. Since the fund was not sufficient to finance operations, supplies were 
purchased and stockpiled from appropriations. In July 1964 it was stated that the stores 
operation at this locale was "on a more businesslike basis" and "well under control" and 
that an inventory taken a few months previously had produced a valuation of $309,000. 

However, when arrangements were being made to take over the stores of other de- 
partments at Frobisher Bay, it was found that control was still lacking. Not only were the 
officially recorded stores not capable of verification but considerable quantities of con- 
struction and other materials, which had come into the possession of the Department 
following the withdrawal of the American defence forces of the Strategic Air Command or 



68 AUDITOR GENERAL'S REPORT 

which had been abandoned by contractors, had not been taken on charge and their value 
was not known. Arrangements were made to have an officer of the Department of Defence 
Production visit Frobisher Bay in January 1965 to survey the situation and to make 
recommendations for proper stores handling. Acting on the resulting report, stores spec- 
ialists were engaged to make a complete physical inventory, catalogue the stock, reconcile 
stock records and reorganize the stores layout. This undertaking is not expected to be 
completed until November 1965. The Management Analysis Division of the Civil Service 
Commission was also requested to study present procedures, design a stores system to 
meet the requirements of the area and prepare a procedure manual for the guidance of 
employees. The results of this study became available to the Department in August 1965 
and implementation of recommendations is now under way. 

Reference has been made above to the stores operation at Fort Smith. The examina- 
tion in June 1965 referred to in paragraph 103 disclosed weaknesses in inventory control 
at this establishment also. The results of a physical inventory of stores undertaken by 
departmental personnel in October 1964 but not yet completed, made even the approximate 
accuracy of the amount of $164,000 charged to the revolving fund extremely doubtful. 

105. Second class mail. In its Fourth Report 1963 the Public Accounts Committee 
expressed the belief that early consideration should be given by Parliament to the alterna- 
tives of revising upward the rates of postage on Canadian publications or providing an 
annual appropriation in an amount sufficient to cover the loss to the Post Office Depart- 
ment from handling second class mail (Appendix 1, item 1). The Committee requested the 
Auditor General to keep the matter before Parliament in his annual Reports in order that 
subsequent Committees might give consideration to it. 

The costs of handling the various classes of mail have in the past been estimated by the 
Department by means of a cost ascertainment procedure in which time studies were used 
The last departmental time study was in 1961-62. 

In 1964 the Department engaged a firm of consultants to examine its cost ascertain- 
ment procedures with a view to establishing accurate costs with respect to the various 
classes of mail. The procedures recommended by the consultants were put into effect only 
in January 1965 and no figures are available to indicate the loss in handling second class 
mail for the year 1964-65. The loss in 1963-64 had been estimated at $35 million which 
included $1.5 million attributable to a special second class rate on newspapers and magazines 
mailed by the public. This rate was discontinued effective April 1, 1964. 

During the year second class revenues increased by $250,000 to $8,433,000. The 
Department attributes the increase in part to the increase in postage rates on third class 
matter which was effective April 1, 1964 and which induced a large increase in applications 
for second class privileges for publications previously mailed as third class matter. 
With effect from April 1, 1964, there was also an increase in the postage rate on publications 
sent to foreign countries other than the Americas. 

106. Second class mail — free mailing privileges. Section 11 of the Post Office Act, R.S., 
c. 212, permits newspapers and periodicals that are published less frequently than daily 
but not less than once a month, to mail a maximum of 2,500 copies per issue free of postage, 
subject to the following conditions: 






AUDITOR GENERAL'S REPORT 69 

(1) addressees must be bona fide subscribers or newsdealers; 

(2) addressees must reside or do business within a 40- mile radius of the office of publication; 

(3) the office of publication must be located in a city, town or village with a population of 
not more than 10,000 persons. 

The 1961 census indicated that there were 598,000 people in the Province of New 
Brunswick and that the town of Campbellton had a population of 9,873. In 1963 the Domin- 
ion Bureau of Statistics estimated the Province of New Brunswick to have a population 
of 614,000 persons. 

The Centennial Commission, w r hich is authorized to make grants on a per capita 
basis to provinces for local projects of a lasting nature, accepted the published intercensal 
estimates of the Dominion Bureau of Statistics for the year ended December 31, 1963 
which show the population for New Brunswick at 614,000. Accordingly the Province, 
using the 614,000 total, revised the population figures of the towns and cities, giving 
Campbellton a population of 10,130. 

In administering section 11 of the Post Office Act, the Post Office Department, upon 
learning the basis upon which centennial grants were to be made, cancelled the free mailing 
privileges previously enjoyed by three newspapers in the area. However, the publishers 
protested, maintaining that the 1961 census figure of 9,873 should stand and the Depart- 
ment re-instated the free mailing privilege. 

107. City transportation services. In an examination of payments by the Post Office 
Department for street letter box clearance in one large city, we observed certain factors of 
time, trips, etc., as set out in the contract specifications that did not correspond with the 
actual performance. It appeared that running time plus time allowances as scheduled in the 
contract and on which payment is based was substantially in excess of the actual hours 
worked. Our test, projected on an annual basis for that city, indicated that idle time totalled 
some 19,000 hours, costing an estimated $68,000. 

Time allowances are designed to compensate the contractor for unavoidable 
delays due to traffic congestion, adverse weather conditions, detours, etc., as well as minor 
extensions or changes in routes. The Department conceded there might be a tendency for 
such allowances to be extended beyond reasonable limits and undertook to have a check 
made of the various routes with a view to adjusting the schedules as required. 

The Department has since informed us that this survey revealed certain anomalies 
in the service provided, in addition to inconsistencies in time allowances. The entire col- 
lection service in that city has been re-designed to eliminate these anomalies and to permit 
an integrated work flow. A saving of approximately $38,000 per annum has resulted. 

108. Postage stamps destroyed. During the year the Post Office Department purchased 
postage stamps to a total face value of $109,470,000 at a cost of $1,323,000. In the same 
period, stamps having a face value of $5,272,000 and an estimated cost of $64,000 were 
destroyed or held for destruction at the year-end because they were spoiled in handling, 
unsaleable or returned from postmasters in lots too small for economical re-issue. 

Included among the stamps destroyed or held for destruction were approximately 
53 million stamps, costing $16,000, of a special 1964 Christmas issue of 412 million stamps 



70 AUDITOR GENERAL'S REPORT 

purchased at a cost of $125,000. The Department over-estimated the demand for these 
stamps and was precluded from using the issue in another year because the stamps were 
dated "Christmas 1964". 

109. Write-off of obsolete stores. Section 60(2) of the Financial Administration Act 
provides as follows: 

Where a board of survey constituted under subsection (1) recommends the deletion 
from inventory of any obsolete or unserviceable stores or materials or any stores or materials 
lost or destroyed, the appropriate Minister with the approval of the Treasury Board, may 
direct the deletion of all or any part of such stores or materials from the inventory, but the 
value of stores or materials so deleted shall not be credited to a revolving fund except with 
the authority of Parliament. 

The Treasury Board, under the provisions of this section, approved the deletion of 
stores which had cost $19,667 from the inventory of the Post Office Department and 
approved the inclusion of an item in the Supplementary Estimates in order to reimburse 
the Post Office Revolving Fund for the cost of these stores items which had become obso- 
lete in inventory. 

The amount appeared in Supplementary Estimates (D), Vote Id, 1964-65, under 
"Postal Services, $328,700", as an allotment for "Mail Bags and Letter Carrier Satchels, 
$19,700", rather than as a separate supplementary item in such a manner as to indicate 
that the amount was to recoup the Post Office Revolving Fund for losses due to obso- 
lescence. The wording of this Estimates item does not convey to Parliament its real purpose. 

1 10. Charges for Post Office lock boxes and bag service. Post Office patrons who receive 
incoming mail in lock boxes are charged an annual rental varying from $2 to $18 depending 
on the size of the box and on whether the patron lives outside or inside of the letter carrier 
area. 

Some patrons who have a very large volume of incoming mail do not rent a lock box 
but are provided by the Post Office with what is known as "bag service" for which they 
are charged an amount of $10 or $18 per annum depending on whether they reside outside 
or inside of the letter carrier area. 

There are other patrons with a heavy volume of incoming mail who rent a lock box 
(usually but not necessarily one of the largest) although the box cannot handle the mail 
volume so that bag service has to be provided. In some cases the box remains unused, 
all the mail being put up in bags for the patron. In such cases the lock box is generally 
retained because the patron wishes to have a post office box number as an address, but 
although he has the use of the box and is also receiving bag service, he pays only the annual 
lock box rental, no charge being made for the bag service. 

We have pointed out to the Department that the provision of a lock box as well as 
bag service for the one annual fee not only provides the patron with a free service not 
available to other patrons, but may be tying up lock boxes required for other patrons. 

The Department has advised us that the situation has been under study but a solution 
has not yet been found because of "the complexity of the problem and possible effect any 
change would have on our box assemblies and post offices". 



AUDITOR GENERAL'S REPORT 71 

111. Post Office Savings Bank. At March 31, 1965 the balance on deposit in approxi- 
mately 300,000 accounts in the Post Office Savings Bank was $23,255,000, including 
approximately 200,000 accounts with an aggregate balance of $2,801,000 classified as 
dormant and unclaimed. In many of these latter accounts the balance of principal has 
remained unchanged for many years. 

Section 52(4) of the Post Office Act, R.S., c. 212, provides that: 

Interest on deposits in the Post Office Savings Bank shall be added to and become 
part of the principal as of the 31st day of March in each year. 

However, in order to keep costs down, interest earned by these dormant and unclaimed 
accounts, which is a charge to annual expenditure, is not being credited to the individual 
accounts but is calculated on the balances of the control accounts only and credited to a 
relatively few interest accounts. Interest accumulated in this manner to March 31, 1965 
totalled almost $1 million and is increasing at the rate of $69,000 annually. 

The Department is now giving consideration to the manner in which the Post Office 
Act could be amended in order that it might deal with unclaimed balances in accounts of 
the Post Office Savings Bank in a manner similar to that in which unclaimed balances in 
chartered banks are handled. 

112. Construction of headquarters building, Department of National Health and Welfare. 
The lowest tender received in 1961 by the Department of Public Works for the construc- 
tion of a new headquarters building for the Department of National Health and Welfare 
was $7,225,000. The Treasury Board considered this amount to be too high and instructed 
the Department of Public Works to reduce it by negotiation with the low bidder. 

It was decided that a substantial reduction could be effected by a number of changes 
in the specifications and by relocating the departmental cafeteria in the basement instead 
of following the original design which proposed its construction as a separate adjacent 
building. A net reduction of $512,000 for these changes was offered by the successful 
tenderer after adding $26,000 for the work involved in installing the cafeteria in what was 
previously to have been an unfinished basement area. The alterations in the plans resulted 
in a negotiated contract price of $6,713,000. 

The Department of National Health and Welfare was not satisfied with the new 
basement plan and called for a number of alterations. The Department of Public Works 
also required some changes. When the contractor quoted a price of approximately $260,000 
for the work involved, the Department of National Health and Welfare was informed 
that the extra cost was unacceptable to the Treasury Board and that all changes would 
have to be kept within the limit of $26,000 previously approved. This resulted in further 
plan changes. 

The plan changes involved in the initial price reduction would have been made by 
the consulting architects without charge but subsequent changes were so numerous and 
extensive that they asked for and were paid $56,825 as an additional fee for what was 
described as "abandoned work and re-design attributable to major changes". 

Payments for the construction of the building to date have totalled $7,264,000, con- 
sisting of $6,865,000 paid to the contractor and $399,000 to the consulting architects. 



72 AUDITOR GENERAL'S REPORT 

The increase in the construction cost over the price negotiated earlier is due to additional 
items of work, primarily in respect of the foundation and the podium area. 

113. Cost of construction of the National Gallery. In May 1957 a contract was awarded 
by the Department of Public Works for the construction of a building in Ottawa for the 
National Gallery of Canada. The contract specified a fixed price of $4,986,000 with delivery 
of the building in August 1959. 

At the request of the Department of Public Works, this fixed price contract was 
amended by the Treasury Board six times. The building, which cost $5,218,000, was 
finally accepted by the Department on February 3, 1960. The additional costs of $232,000 
were caused mainly by circumstances which had not been foreseen when the contract 
was entered into. 

Site excavation work was delayed by the discovery of clay seams in the rock, which 
required further core drilling to determine the adequacy of the foundation design. A 
further delay occurred while underpinning was placed to support electrical ducts located 
beneath an adjacent sidewalk. In addition, National Gallery officials requested that 
changes be made in the partitioning and luminous ceilings, etc. These changes necessarily 
interrupted the contractor's timetable and added materially to the final cost. 

Following delivery of the building, the contractor submitted a delay claim covering 
his site administration costs, loss of productive equipment time and increased heating and 
other costs. The claim was paid in the amount of $35,632 in August 1964. 

114. Cost of revised and abandoned plans for buildings in Ottawa. In March 1961 two 
firms of consulting architects were engaged to prepare plans and specifications and to 
supervise construction of a headquarters administration building in the Confederation 
Heights area for the Department of Northern Affairs and National Resources, together 
with an adjoining headquarters building for the Department of Forestry. The complex 
was also to include accommodation for the Canadian Government Travel Bureau and a 
unit of the Department of Public Printing and Stationery. The estimated cost of con- 
struction was $9,987,000 with architects' fees amounting to $484,000. 

The architects completed the plans and specifications for the project by early 1963. 
Subsequently it was decided not to locate the Department of Forestry and the Canadian 
Government Travel Bureau in the complex. The architects thereupon redesigned the plans 
for the remaining known occupants. It later developed that the space planned for the unit 
of the Department of Public Printing and Stationery was not required. 

In November 1963 strenuous objection to the Confederation Heights location was 
lodged by the Minister of Northern Affairs and National Resources on the grounds that 
the Department should be located in the central part of the city "with ready access to the 
House of Commons". This objection led to cancellation of the proposal to locate the De- 
partment at Confederation Heights and it has since been accommodated in a new down- 
town building, 219,000 square feet of space having been leased for a period of ten years 
at an annual rental of $688,000. The Department had previously occupied 120,000 square 
feet in a number of down-town buildings with an annual rental value of approximately 
$351,000. 



AUDITOR GENERAL'S REPORT 73 

In May 1964 the Treasury Board approved in principle modification of the Con- 
federation Heights building plans to adapt them for an administration building for the 
Taxation Division of the Department of National Revenue. In order to salvage as much as 
possible of the plans already completed, the Department of Public Works proposes to 
retain the building in its original design except that it will be reduced from seven to five 
storeys with the cost of construction estimated at $6 million. It also proposes to construct 
a building in the same area to house a data computer centre for the Department of National 
Revenue and a cafeteria building to be linked to the administration building, the estimated 
cost of these being placed at $9 million. 

As a result of this re-planning of the whole project, it is estimated that the fees which 
will finally be paid to the two firms of architects will approximate $936,000, including an 
expense of about $220,000 resulting from the revisions to and the abandonment of plans 
in respect of the original concept. 

115. Cost of abandoned plans for headquarters building, Department of Transport. In 
1957 the Department of Transport requested a new headquarters building in Ottawa and 
in 1960 the Department of Public Works agreed that provision should be made for a 
suitable building in the Confederation Heights area. Preliminary plans were for a building 
expected in October 1961 to cost between $10 million and $12 million. 

Two firms of consulting architects were appointed in November 1961 to prepare 
plans and specifications and to supervise construction. However, following consideration 
of a master plan prepared for the National Capital Commission for the future develop- 
ment of federally-owned property in the Confederation Square area, the decision was 
taken in September 1963 that the proposed Department of Transport building should be 
located in this area. 

It was decided in June 1964 to discontinue the services of the consulting architects and 
the contract was cancelled, with the consultants, who had done considerable work on 
the plans for the proposed building, being paid $80,580 for their services. 

116. Cost of modifying heating plant in new building, Toronto. The Mackenzie Building 
was built to house government departments in Toronto and was accepted from the con- 
tractors in stages between November 1959 and April 1960. Its final cost was $13,087,000. 

At the request of the Department of Public Works, the consulting architects provided 
for the use of coal in heating and specified underfeed ram type stokers. Over the period of 
a year during construction the contractor operated the boiler plant for temporary heating 
using the type of coal recommended by the stoker manufacturer. 

Difficulties in operating the heating plant were encountered by the Department 
shortly after it took delivery of the building. The architects denied responsibility, pointing 
out that they had advised the Department of the importance of purchasing coal based on 
the recommendations of the manufacturer of the installed equipment but that their advice 
had not been taken. 

In 1964 the Department converted the heating plant from coal to natural gas, with 
oil as a stand-by, at a cost of $27,389. 



74 AUDITOR GENERAL'S REPORT 

117. Relationship of site cost to building cost, Woodstock, Ont. In considering proposals 
for the construction of federal buildings, the Treasury Board follows a general rule that 
costs of the site should range between 15% and 25% of building costs. If a greater per- 
centage cost appears, the department concerned is required to explain in detail the special 
circumstances necessitating the higher cost. 

In the case of a new federal building in Woodstock, the site cost exceeded 52% of 
the building cost when the proposals of the Department of Public Works were set aside 
in favour of those made by municipal officials and others. 

In September 1960 the Department received the concurrence of the Treasury Board's 
Advisory Committee on Accommodation Standards to a proposal for erection of a federal 
building to house government departments at Woodstock at an estimated cost of $425,000. 
The site approved by the Committee was a Crown-owned armoury property and an 
adjoining property which it was expected could be acquired for approximately $60,000. 
Its location, less than two blocks from the main street and adjacent to the provincial 
buildings, was reported to be acceptable to the municipality. 

Shortly after taking this decision the Department was asked by the Mayor and others 
to consider another site which it was claimed would prove more beneficial to the munici- 
pality in its overall planning and would help to rehabilitate a depressed section of the city. 
While the location of this site compared favourably with the original one, the Department 
viewed with concern the increased cost of acquiring it. 

However, in February 1962 it decided to proceed with the site favoured by the local 
officials and expropriated six properties required for siting and parking facilities. 

During 1962 and 1963 the Department submitted proposals for settlements to the 
Treasury Board for approval. In September 1962 the Board stated that although the land 
costs appeared unnecessarily high, "abandonment of the properties would result in very 
serious claims being submitted against the Crown which in turn would tend to outweigh 
any savings to be realized by reverting to the Armoury or some other less costly site". 

The total cost of the site including payments to the former owners, to certain tenants 
in respect of leasehold interests, legal services, demolition of the buildings, etc., amounted 
to $283,000. The final cost of the building erected on the site, with associated costs in- 
cluding consultants' fees, will approximate $537,000. 

118. Cost of little-used railway spur line, Pointe-au-Pere, Que. In 1958 the Department 
of Public Works decided to proceed with the construction of a deep water winter port at 
Pointe-au-Pdre costing approximately $3 million. Included in this development was to 
be a spur line, 3| miles long, from the Canadian National Railways main fine to the pro- 
posed port. The Department estimated the cost of such a spur line at $600,000 and invited 
the Railways to give favourable consideration to this investment as their share of the 
overall project. 

The Railways declined, stating that their assessment of the situation was that the 
possible new rail traffic which might be expected to result from the building of the line 
would not justify their assuming "all or part of the capital cost and/or the related 
annual maintenance cost". 






AUDITOR GENERAL'S REPORT 75 

In 1960 the Department obtained authority from the Treasury Board to enter into a 
standard industrial siding agreement with the Railways which provided that the De- 
partment would accept financial responsibility for the acquisition of the site, the con- 
struction of the right of way, maintenance and snow removal. The Railways agreed to 
install the rails and associated equipment for which an annual rental would be required. 

Construction of the spur line was completed in 1961 at a cost of $401,000 to the De- 
partment, whereupon it transferred the facilities to the Department of Transport for 
control and management, with the latter Department becoming responsible for the pay- 
ment of the annual rental of $4,169 for the trackage. However, no annual rental has been 
paid yet. 

The Department of Transport was concerned that responsibility for this spur line 
should be thrust upon it in this way and asked for a clarification of policy. As a result, the 
Treasury Board in 1963 approved of a new policy to be followed in future with respect 
to the installation of railway tracks on government wharves. This policy provides that 
tracks at new wharves are to be installed only at the request and expense of a railway, with 
the railway determining whether the traffic involved would justify such consideration. 

The wisdom of this policy is illustrated by the use made of the spur line since its 
construction at Pointe-au-Pere. Only four carloads were handled on the spur in 1962 and 
none in 1963. The primary use of the track has evidently been to bring railway cars to 
the wharf in winter to serve as a windbreak for ferry traffic. 

119. Failure to provide for subsidy review. In October 1962 a company which proposed 
to construct a new floating dry dock at Montreal approached the Department of Public 
Works to obtain financial assistance under the Dry Docks Subsidies Act, R.S., c. 91. The 
Act provides that the Governor in Council may authorize the payment of a subsidy in 
respect of dry docks in the category contemplated, not exceeding 4|% per annum of the 
cost of the work, to a maximum of $4 million, during a period not in excess of 35 years. 
On this basis the Department sought approval in principle from the Treasury Board to 
enter into an agreement to pay a subsidy of $180,000 per annum if the private capital 
outlay was at least $4 million. 

The Board concurred with the Department's proposal on condition that the agree- 
ment provide that the subsidy be the subject of review at reasonable intervals, three to 
five years being mentioned. If these periodic reviews established that the net operating 
revenue, together with the subsidy, had resulted in a return in excess of 12% on the private 
capital investment, provision was to be made for a downward adjustment of the subsidy 
for the ensuing period. 

The proposed dry dock could not qualify as a floating dry dock of the first class, as 
defined by the Dry Docks Subsidies Act, because it would not be capable of receiving and 
repairing therein "with ease and safety the largest ships or vessels of the British Navy 
existing at the time the contract is entered into". This impediment was, however, removed 
by Public Works Vote 132e, Appropriation Act No. 4, 1964, assented to on April 13, 1964, 
the text of which was: 



76 AUDITOR GENERAL'S REPORT 

Payment to Canadian Vickers Limited of a subsidy in respect of a dry dock in Montreal, 
Quebec, in accordance with the Dry Docks Subsidies Act, Chapter 91, R.S., as though 
it were a dry dock of the first class described by section 7(a) of the Act $1. 

On April 28, 1964 the Department of Public Works reported to the Governor in 
Council that the Canadian Maritime Commission had been authorized to pay a subsidy 
of $2, 198,000 towards the cost of the dock under the Ship Construction Assistance Regu- 
lations and that this, when applied in reduction of the cost of the dry dock estimated by 
the company at $6,299,000, would reduce the company's investment to $4,101,000. Ac- 
cordingly authority was sought and obtained to enter into an agreement for the payment 
of an operating subsidy under the Dry Docks Subsidies Act of $180,000 per annum for 
a period of 35 years. 

The Department, however, failed to advise the Governor in Council of the condition 
imposed by the Treasury Board in 1962 whereby the subsidy should be reviewed at periodic 
intervals to determine whether net operating revenue, together with the subsidy, was 
resulting in a return in excess of 12% on the company's own investment, and this proviso 
was not included in the agreement signed by the Department with the company in June 
1964. 

The Department was asked for an explanation and we were informed that the Board's 
requirement had been inadvertently overlooked. In November 1965 the Department 
informed the company that, in the circumstances, there was no alternative but to amend 
the agreement by the inclusion of the necessary proviso. 

120. Cost of activating water supply system, Churchill, Man. In 1960 a contract was 
placed by the Department of Public Works for the construction of an access road, an 
intake structure and supply lines to provide a water supply system at Churchill, which 
was completed in 1961 at a cost of $932,000. 

The construction of an intake pumphouse had been planned so that the supply lines 
could be activated shortly after their completion without lying dormant during the winter 
season. However, the contract for the pumphouse was not awarded until April 1962. It 
was scheduled for completion in October 1962 which date was eventually extended to 
November 1963 because of difficult excavation problems. It was completed by August 
1963 at a cost of $257,000. 

The delay in proceeding with the construction of the pumphouse meant that the water 
supply system could not be placed in operation before the 1961 freeze-up. The lines were 
de-watered to prevent frost damage and a resident engineer from the firm of consultants 
retained for the project was authorized to remain at the site during the winter to ensure 
that air pressure was maintained to guard against water infiltration. Notwithstanding 
this precaution, a partial blockage caused by ice was encountered when the lines were 
tested in October 1962. Although the pumphouse contractor made preliminary efforts to 
clear the lines, the situation became more critical and in December 1962 the Department 
instructed the consulting engineers to take emergency action. It was not until the following 
November that all lines were activated. 

In addition to their charges for consulting services in the construction of the water 
supply system, the consulting engineers claimed an additional $141,000 for their services 



AUDITOR GENERAL'S REPORT 77 

in freeing the lines and activating the system, and these claims for the most part were 
paid prior to March 31, 1965. The Department has taken the position that insufficient 
care was taken by the consultants to ensure that the lines remained water-free during the 
freezing period. The consulting engineers maintain that the basic cause of the mishap was 
that the supply lines were built considerably in advance of the pumphouse. 

The consulting engineers have assumed $10,000 of the cost without prejudice to 
their position. 

121. Additional costs due to inaccurate specifications. In May 1962 the Department of 
Public Works awarded a contract in the amount of $118,000 for dredging in the harbour 
at Sault Ste. Marie, Ont. 

The pre-dredging boring program carried out by departmental engineers had shown 
no bedrock above grade, although it was stated that some occurred between grade and 
sub-grade. The contractor reported that he had encountered either very large boulders or 
extremely hard shelves of flat sandstone and as a consequence was obtaining little or no 
production and suffering more than average wear and tear on his equipment. Shortly 
afterwards the departmental district engineer informed the Department that contrary 
to the information provided by the pre-dredging borings, sweeping, sounding and inspec- 
tion by clivers had revealed substantial areas of bedrock above grade. 

The contractor was paid an additional $28,000 to cover loss of time and the additional 
wear and tear to which his equipment had been exposed while working in the bedrock area. 

122. Continuing federal assistance to intra-provincial ferry services. In our 1963 Report 
attention was drawn to the continuing federal subsidization of ferry landing facilities for 
provincial governments despite the general policy of the Department of Public Works 
and the Treasury Board over many years to regard such facilities at either end of a ferry 
service linking an intra-provincial highway as the exclusive responsibility of the province 
concerned. 

The cases described at that time dealt with major wharf improvements in the lower 
St. Lawrence area, namely at Les Eboulements for the ferry service to lies aux Coudres 
and the construction of terminal facilities at Matane for the ferry service to Godbout. 
In the latter case the Treasury Board withheld its approval of the contract because it 
was felt exception should not be made to the general policy regarding facilities for intra- 
provincial ferry operations. Eventually, however, "since some commitment had been 
given to the private interests, on which basis they undertook substantial commitments 
related to the acquisition of a vessel and the construction of the Godbout terminal", the 
Board reluctantly approved proceeding with the Matane project which was completed 
at a cost of $172,000. 

Construction of the Matane terminal and dredging at Godbout were undertaken at 
that time on the understanding that the ferry operator would construct the Godbout 
terminal and acquire and operate the ferry without further federal assistance. Notwith- 
standing this, Executive authority was granted in August 1963 for entry into a three- 
year subsidy agreement. 



78 AUDITOR GENERAL'S REPORT 

In 1963 the Department of Public Works was requested by the private owners to 
purchase the Godbout terminal on the grounds that the facilities at both ends of other 
ferry services in the lower St. Lawrence River area had been provided at federal expense. 
Specific provision was made for the purchase in Vote 30 of the Department's 1964-65 
Main Estimates and the purchase was approved by the Treasury Board in July 1964 at 
a cost of $268,000. 

This acquisition has now brought to six the number of locations where the federal 
Government has provided terminals at both ends of cross-river ferry services in the lower 
St. Lawrence River. The total expenditure over the years for these terminals, which in 
some cases form part of shipping wharves, had exceeded $7 million at March 31, 1965. 

123. Contribution due for ice control structure, Montreal. Ice jams have always been a 
serious problem in the St. Lawrence River between Lake St. Peter and the Montreal 
harbour. It was foreseen that creation of the site for Expo '67 in this area would intensify 
this problem. Since icebreaking capacity sufficient to guarantee an open river throughout 
the winter could not be assured, an interdepartmental committee decided in 1963 that 
an additional safeguard should be provided in the form of an ice control structure to 
provide protection to the Exhibition site and to assist in controlling the ice conditions in 
the area. It was announced early in 1964 that the estimated cost of the structure would 
be $12.5 million. It is now expected to cost approximately $15.5 million. 

Following a meeting held with the City of Montreal in July 1963, a document was 
signed by the three federal Ministers concerned and the Mayor of Montreal, which among 
other things recorded the City's agreement to make a contribution of $2.5 million toward 
the cost of the project. 

It was May 1964 before legal officers of the Department of Public Works and the 
City of Montreal met to work out the details of an agreement to provide for this con- 
tribution by the City. The departmental legal officers, however, expressed doubts as to 
the legal capacity of the City to enter into the project without provincial legislation. As 
a consequence it was not until June 1965 that an opinion was obtained to the effect that 
the City would be so empowered, subject to the passing of an enabling by-law by the City 
Council. 

The agreement has not yet been signed. Meanwhile, construction has proceeded and 
the project is due for completion by July 1966. Federal government progress payments to 
the contractors and engineers up to March 31, 1965 totalled $5,983,000 and have been 
advanced without any contribution so far by the City of Montreal under its 1963 
undertaking. 

The Department advised us in November 1965 that the resolution of the problem is 
imminent. 

124. Funds not accounted for by former officers. It will be noted from paragraph 2 of 
this Report that section 70(1) (e) of the Financial Administration Act requires the Auditor 
General to call the attention of the House to every case in which he has observed that 
there has been a deficiency or loss through the fraud, default or mistake of any person. 



AUDITOR GENERAL'S REPORT 79 

Details of all losses incurred by reason of defalcations or other fraudulent acts or 
omissions of a public officer are listed annually in a statement of losses in the Public Accounts 
prepared pursuant to section 98 of the Financial Administration Act. The Audit Office 
checks this statement of losses to ensure that all losses observed during the year are 
included therein and has followed the practice of calling the attention of the House only 
to individual deficiencies or losses when the circumstances appear to warrant this. 

The statement of losses in the Public Accounts for 1963-64 listed two losses, totalling 
$912 and $470 respectively, resulting from "misapplications of, or omission to account 
properly for, public funds". These losses were established by the Royal Canadian Mounted 
Police as having been caused by the failure of two of its officers to properly account for 
public moneys in their charge. 

In December 1964 the two officers responsible for these deficiencies were compulsorily 
retired on pension "to promote efficiency", the pension in one case being reduced, under a 
provision of the Royal Canadian Mounted Police Pension Continuation Act, to relate to 
the period of satisfactory service prior to the time of misconduct. 

In January 1965 the R.C.M.P. sought to collect the amounts of the two losses by 
deduction from the pensions of the officers involved pursuant to section 95(1) of the Finan- 
cial Administration Act which reads as follows: 

Where, in the opinion of the Minister of Justice, any person is indebted to Her Majesty 
in right of Canada in any specific sum of money, the Treasury Board may authorize the 
Minister of Finance to retain by way of deduction or set-off the amount of any such indebted- 
ness out of any sum of money that may be due or payable by Her Majesty in right of Canada 
to such person. 

In accordance with this provision, the Department of Justice was asked to consider a 
reference to the Treasury Board in order that the losses might be discharged in the manner 
sought by the Force. After the Department had examined the material assembled by the 
Force in the course of its investigation, they advised that the material did not establish 
that the two former officers "are indebted to Her Majesty in right of Canada within the 
meaning of section 95(1) of the Financial Administration Act and that, in any event, there 
is no specific sum within the meaning of that section". 

As a consequence of this decision, no recovery of the losses will be made from the 
officers' pensions. 

125. Excess cost of Seaway property. In 1955 the Department of Transport expropriated 
52 acres of land in the Township of Cornwall, Ontario, for the purpose of a future all- 
Canadian seaway. One of the properties had frontage on the Cornwall Canal and the 
former owner of the property had a licence from the Department to use canal lands to 
unload and store coal. During negotiations to effect settlement for the property the 
former owner demanded either special compensation for the benefit he enjoyed from the 
use of canal lands or a 20-year lease without cancellation clause. Consequently, the 
Department decided that the property would be acquired only when it was actually needed 
for canal purposes and it abandoned the expropriation in 1956. 



80 AUDITOR GENERAL'S REPORT 

Although the property was then surrounded by Crown-owned lands and it was evident 
that it would have to be re-expropriated and compensation paid to the owner for im- 
provements and loss of business, the owner proceeded to construct a 96,000-barrel fuel 
oil storage tank in 1956 and, without obtaining an easement, installed an oil pipeline across 
the Crown-owned canal lands to a dock on the canal. For several years afterwards the 
owner tried to sell the property to the Department of Transport and later to The St. 
Lawrence Seaway Authority. In 1961 the owner submitted an application for a lease in 
which an offer was made to sell the property to the Authority for $280,000 and to lease it 
back from the Authority at an annual rental of $16,000 for a period of fifteen years, subject 
to cancellation at the option of either party on six months notice. The property was then 
purchased on this basis with the approval of the Governor in Council on April 30, 1964 
for $282,000, including $132,000 for the oil storage tank. Indications are that the antici- 
pated rental income over fifteen years was a consideration in the decision to purchase the 
property at the price offered. On May 1st the vendor signed a lease for a parcel of this 
land and another company in which the former owner had an interest signed a lease for a 
second parcel containing the storage tank, together with a right-of-way for a pipeline 
extending across the first parcel. On May 5th, or four days later, the former owner gave 
six months notice of cancellation of the lease on the first parcel. 

As a result, the Authority will not receive approximately $90,000 rental income which 
it had expected to receive under the lease on the first parcel. Furthermore, it has paid 
$132,000 for an oil storage tank which was not in existence at the time of the original 
expropriation. 

126. Deficits on inspection services. The Standards Branch of the Department of Trade 
and Commerce is responsible for the administration of the Gas Inspection Act, R.S., 
c. 129, the Electricity Inspection Act, R.S., c. 94, and the Weights and Measures Act, 
R.S., c. 292. These statutes regulate the sale and use of measuring devices required for 
the distribution of gas and electricity and for general weight, volume and length determina- 
tion. The inspection in each service is two-fold: first, approval of meters and devices before 
sale and installation, and second, in-use inspection. 

Our examination of the Branch records included an appraisal of the internal controls 
and procedures in revenue collection as well as a comprehensive analysis of revenues in 
relation to costs incurred. In our opinion the revenue earned from inspections is subject 
to adequate continuous internal check and accountability but there is an increasing 
disparity between the revenues and costs incurred. 

The Gas Inspection Act and the Electricity Inspection Act provide that: 

such fees shall be regulated so that they will, as nearly as may be, meet the cost of carry- 
ing this Act into effect. 

The Department interprets costs to include only direct costs of salaries and expenses 
of district offices. This excludes the share of the cost of the laboratory, which is involved 
in type approval of meters and other related inspection work, the expenses of Branch 
administration and the cost of services provided by other departments. 



AUDITOR GENERAL'S REPORT 81 

By comparing only direct costs with revenue, the service gave an appearance of being 
self-sustaining up to and including 1957-58. Since that time, direct costs have exceeded 
revenues by a low of $47,000 in 1958-59 to a high of $218,000 in 1964-65. Indirect costs 
were estimated to be $475,000 in 1964-65 so there was a deficit of approximately $700,000 
in the year. 

Fees for testing gas and electrical devices remain basically the same as in 1911. As 
new devices are introduced the new fees assessable are added to the rate schedule, the last 
such addition being for new electric power meters introduced in 1951. Consideration 
should be given to a re-assessment of the rate structure in order that the costs of providing 
this service may be recovered as required by the relevant Acts. 

The Weights and Measures Act provides that: 

The Governor in Council . . . may make regulations respecting the fees to be paid to 
inspectors for inspecting and verifying weights, measures, weighing machines and meas- 
uring machines or for weighing or measuring goods under this Act . . . 

While the Act does not explicitly require revenue from fees to match the cost of the 
inspection services, it is our view that it should do so. 

Each year from 1942-43 to 1964-65, direct costs have exceeded revenues from a low of 
$4,000 in 1946-47 to a high of $413,000 in 1964-65 despite the fact that fees were increased 
25% on January 1, 1959. Indirect costs were estimated to be $578,000 for 1964-65 so that 
the actual deficit for the year was approximately $1 million. 

Section 30 of the Act further provides: 

... all weights, measures, weighing machines and measuring machines authorized by or 
under this Act for use in trade shall be inspected, verified and stamped at least once 
every year. 

However, only 82% of the devices covered by the Act were tested during the year 
ended March 31, 1964 because of insufficient staff and widely scattered locations. 

Consideration should be given to a complete re-assessment of the rate structure of 
the weights and measures inspection service in order to recover, to the extent practicable, 
the total costs of the service. 

127. Claims resulting from completion of air terminal building ahead of schedule. Unusual 
circumstances were associated with a negotiated settlement for damages claimed against 
the Department of Transport during the year under review. 

Prior to 1960 it became apparent to the Department that the new airport facilities 
at Edmonton would be completed several years in advance of the availability of a new 
permanent air terminal building. The erection of a temporary structure for the purpose 
was not proceeded with when it became known that a company which was planning to 
construct a major hangar at the new airport would make interior alterations which would 
enable the building to be used as a temporary terminal. In 1960 the Department entered 
into a lease for space in the hangar and in so doing became obligated "to use and in fact 
to occupy the demised premises and maintain the same as the administrative centre and 
terminal for the said airport for the duration of the term hereby created", which was for 
the period November 14, 1960 to September 30, 1964. 



82 AUDITOR GENERAL'S REPORT 

A number of airlines, caterers, taxi companies, etc., which in other circumstances 
would have rented space in a Crown-owned terminal building, also entered into lease 
agreements which they made directly with the owner of the hangar. In each case these 
individual lease agreements provided that the term would not extend beyond the date on 
which a permanent terminal building was occupied by the Department of Transport. 

The new terminal was unexpectedly completed and ready for occupany by December 
1963. The Department of Transport and all of the other tenants terminated their leases 
and moved to the new premises with the result that the owner of the hangar lodged the 
following claims against the Department: 

1. Claim for rental due by the Department for the period December 1, 1963 to September 
30, 1964. This amounted to $60,000. The claim was not disputed by the Department 
which had not foreseen the possibility that the new terminal would be ready prior to 
September 30, 1964. As it had obligated itself in the lease to pay rental until that date, 
the claim was paid in full. 

2. Claim for damages resulting from loss of revenue due to the terminated leases of the air- 
lines, caterers, taxi companies, etc., who also moved to the new terminal when it was 
ready for occupancy. The net amount of this claim, based on the total rentals of these 
tenants for the period December 3, 1963 to September 30, 1964, totalled $80,000. 
Negotiations with the owner of the hangar by the Department of Justice resulted in a 
settlement of $62,000 which was paid by the Department during the year. 

128. Cost of re-roofing air terminal building, Gander, Nfld. The roof of the new air 
terminal building under construction at Gander for the Department of Transport was 
completed in 1957. The company which supplied the roofing material provided a bond 
under which it guaranteed to maintain the roofing membrane over the insulation for a 
period of twenty years at its own expense, excepting repairs required for any cause other 
than ordinary wear and tear by the elements. 

In 1962 it became apparent that the roof was leaking and the company was requested 
to make repairs in accordance with the terms of the bond. It successfully disclaimed 
responsibility because the damage had resulted from the use of the roof as a storage area 
and a right of way by personnel of both the Department and the building contractor and 
could not be attributed to ordinary wear and tear by the elements. In 1963 conditions 
were such that it was necessary to enter into a contract for the re-roofing of the building 
at a price of $77,000, none of which can be recovered. 

129. Cost of salvaging sunken vessel. On March 5, 1964 a barge in tow with a cargo 
of oil sank in over 200 feet of water off Pasley Island in Howe Sound, B.C. Leaking oil 
fouled the beaches in the area. After the charterer had endeavoured to contain the pollution 
and clear the surface of the sea, he notified the Department of Transport that he was 
abandoning the vessel because the risk of rupturing the hull during any attempt at salvage 
and the cost of salvage were too great to contemplate. 

The oil-laden barge remained a serious threat to water-fowl, marine life and coastal 
property and its removal was regarded as essential by the Department. As the wreck was 
not a menace to navigation, there was no legislation under which the private interests 



AUDITOR GENERAL'S REPORT 83 

involved could be held responsible for its removal or for costs if removal were undertaken 
by the Crown. Accordingly, the Department engaged salvage experts to investigate and 
report on the best means of dealing with the sunken barge. 

Salvage operations commenced in June 1964 under a "no cure, no pay" contract. 
After the contractor's costs had exceeded the contract price, with little progress having 
been made, he indicated that he wished to withdraw from the undertaking and minimize 
his losses. This led to Treasury Board authority to negotiate with the same contractor 
to proceed on an incurred cost basis. 

In October 1964 the barge was finally raised and removed to Vancouver, where it was 
sold for $12,752 by Crown Assets Disposal Corporation. The remaining oil was found to 
have been so badly contaminated by sea water that it was valueless. Salvage costs paid to 
the end of the year amounted to $265,000. The total expense of the operation is expected 
to be at least $430,000. 

We understand that consideration is being given to recommending legislation to place 
financial responsibility on the owners for the removal of a wreck or its cargo, in circum- 
stances such as the above. 

130. Cost of abandoned design plans for ferry vessel. In February 1964 the Department 
of Transport retained a firm of naval architects to prepare plans and specifications for an 
ice-strengthened railway car ferry to operate between North Sydney, N.S., and Port aux 
Basques, Nfld. A fixed fee of $110,000 was agreed upon and the architects submitted a 
preliminary general arrangement plan and preliminary stability particulars. 

Shortly after this date the Department informed the architects that the Canadian 
National Railways, which would be operating the vessel and had been consulted before 
the decision for an ice-strengthened ferry rather than one with full ice-breaking capacity 
had been made, were "quite emphatic that the vessel be designed for ice-breaking service 
and consequently the power will have to be revised to give an 18-knot service speed with 
diesel electric propulsion and ice-breaking qualities and scantlings". 

After the architects had notified the Department that they were making revisions to 
meet the Railways' requirements, they were directed to suspend work while the issues 
involved were reconsidered. In April 1964 the Department decided that as the difference 
in the cost of building a full icebreaker as distinct from an ice-strengthened vessel would 
be very great, its original decision should be confirmed. The architects were then instructed 
to proceed with the original proposal. 

The architects requested a revision of the fee that had been agreed upon in February 
1964 which was then re-set and agreed to at $130,000, or $20,000 more than the original 
fee. 

131. Purchase and conversion of ferry vessel. On May 19, 1964 the Department of 
Transport recommended to the Treasury Board that approval be given for the immediate 
purchase of a ferry for the carriage of freight between North Sydney, N.S., and Port aux 
Basques, Nfld. The Department stated that, if an offer to purchase were made before 
May 25th, the vessel could be acquired at a very reasonable cost. 



84 AUDITOR GENERAL'S REPORT 

The vessel, a 432-foot railroad car ferry, built in 1951 by a Canadian shipyard for the 
Miami-Havana service, had been on the market for some time and, since 1961, a firm of 
ship brokers in New York had made four separate attempts to interest the Department of 
Transport in acquiring the vessel. No action was taken, however, because prior to 1964 
departmental policy had been to acquire ships only by construction within Canada. In 
1964 the Department decided that an urgent situation which had developed with regard 
to the movement of freight between North Sydney and Port aux Basques warranted a 
change of policy which would recognize that emergency circumstances might justify the 
acquisition of a vessel outside of Canada. 

The purchase price was $1,513,000 "free alongside" the port of Sorel and the Depart- 
ment advised the Treasury Board that it estimated that repairs and conversion would 
cost $750,000, making a total outlay of $2,263,000 to place the vessel in service. The 
Treasury Board approved the purchase on this basis on May 21, 1964. 

Departmental records indicate that a Sorel shipyard had obtained an option on May 
8, 1964 to purchase this vessel at Jacksonville, Florida, from its United States owners for 
a price of U.S. $1,200,000. The option, good until May 25th, was duly exercised and the 
vessel was then sold to the Department of Transport on May 26, 1964 for $1,513,000, 
pursuant to the authority given by the Treasury Board. 

On July 6, 1964 the Department requested authority to enter into a further contract 
with the Sorel shipyard for conversion and refit of the vessel. It was estimated that this 
work would exceed the $750,000 figure given to the Treasury Board on May 19th, the sub- 
mission stating that the costs would total $755,000, plus $481,000 as a contingency to 
cover extra work arising from the opening up and modifications called for by the Canadian 
National Railways, the intended operators of the vessel. It was not proposed to invite 
competitive tenders because of the time factor which necessitated placing the vessel into 
service as quickly as possible. The Treasury Board replied on July 29th that it would be 
prepared to authorize entry into a contract on a price to be negotiated basis on the under- 
standing that a realistic target incentive contract would be submitted to the Board for 
approval after the vessel was opened up and specifications had been prepared. 

It then developed that the work required exceeded all previous estimates and it was 
October 1964 before the Department negotiated a contract with the shipyard on the basis 
contemplated by the Treasury Board, setting the estimated conversion cost at $1,844,000 
with an incentive clause covering the division of savings on the target price. 

Costs incurred under this contract for the conversion and refit of the vessel, which was 
accepted by the Department on May 1, 1965, amounted to $2,447,000. 

132. Cost of faulty planning in ferry design. In September 1963 the Department of 
Transport entered into a contract with a firm of naval architects for the preparation of 
plans and specifications for an ice-breaking railway and automobile ferry for operation in 
the Northumberland Strait and Newfoundland service at a fixed fee of $156,000. 

Six months later it became evident that allowance would have to be made for rail 
car weights considerably in excess of those contemplated in the original planning if the 
vessel was to be properly stabilized. When this decision was communicated to them, the 



AUDITOR GENERAL'S REPORT 85 

architects placed a value of $102,000 on the work they had already done. They estimated 
that they would be able to use work to the value of $47,000 in the revised planning and 
that the balance of $55,000 represented the cost of the planning work to be abandoned. 
They were reimbursed in full by the Department. 

In considering the Department's report on the circumstances of this case, the Treasury 
Board pointed out that the need for the design changes might have been avoided had 
departmental engineers taken the precaution to verify their information regarding freight 
car weights with the Canadian National Railways before commencing the basic design. 
The Board pointed out that it would seem improbable that the planning and implementa- 
tion of modifications to the design and construction of the freight cars took place entirely 
between August 1963, when the basic plans for the new ferry were developed for the 
Department, and February 1964 when the new weight data was provided to the Depart- 
ment by the C.N.R. 

The Treasury Board directed that procedures be developed for the verification of 
basic data to avoid similar situations in future. 

133. Cost of changing vessel design. In May 1963 the Department of Transport entered 
into a contract at a fixed fee of $86,000 with a firm of naval architects for the preparation 
and supply of plans and specifications for the construction of an icebreaker supply and 
buoy vessel, estimated to cost $8,800,000, for operation in the Gulf of St. Lawrence. 

Following submission of preliminary drawings by the architects, the Department 
requested that the accommodation requirements be increased from 71 to 91 as the result 
of the development of a new rating structure for vessels, leading to a revised crew comple- 
ment. An additional factor was that experience in the north, where it was decided that this 
ship would have to be used during the summer, was increasingly pointing to the need for 
extra berth capacity in connection with the type of work involved in northern operations. 

In September 1963 the architects advised that the vessel would have to be increased 
in length to provide for these and other lesser changes and that "all the work we have 
executed since February becomes null and void and we request your concurrence that a 
fresh start of the design is warranted". 

This concurrence was given in July 1964 and an additional payment of $20,000 was 
made to the architects. 

Entry into a contract for the building of the ship was approved by the Treasury Board 
in September 1965. 

134. Cost of altering vessel design plans. In May 1963 a firm of naval architects was 
retained by the Department of Transport at a fixed fee of $42,000 to prepare plans and 
specifications for the construction of an icebreaker supply and buoy vessel for service on 
the Great Lakes. 

In September the architects delivered their preliminary plans and specifications 
prepared in accordance with departmental requirements and guidance plans supplied. In 
November the Department advised the architects that the design was to be modified for 
service in the St. Lawrence River and the Gulf of St. Lawrence and also to provide Arctic 
supply capabilities. 



86 AUDITOR GENERAL'S REPORT 

In August 1964, after the architects had completed their engagement, they were 
paid $15,000, additional to the fixed fee of $42,000, for the extra work in preparing the 
new design. 

The award of a contract for construction of the vessel at a price of $5,267,000 was 
amiounced in April 1965. 

135. Cost of "dead-freight". The Department of Transport conducts an annual Arctic 
re-supply operation which includes the making of arrangements for transportation, 
stevedoring and other shipping services for other government departments and agencies 
on a recoverable basis. In April 1964 the Department called for tenders for the carriage 
of specified tonnages of cargo from Montreal to northern ports with the proposed loading 
dates scheduled for July 1964. The offer that was accepted quoted rates based upon "the 
minimum figures as shown in the request for tenders". 

When the goods were loaded at the scheduled sailing time in Montreal, it was apparent 
that the total cargo was about 1,115 tons, or 21.5% less than what had been originally 
contemplated, of which 990 tons represented a short-shipment by the Department of 
Northern Affairs and National Resources. The total shortage represented a "dead-freight" 
charge of $67,000, a figure which was ultimately reduced to $44,000 through concessions 
made by the shipping company. Of this latter amount, $33,000 was charged to a Depart- 
ment of Transport appropriation in the current year and the balance to the following 
year. 

136. Subsidizing of intra-provincial ferry service. Since 1906 the operation of a ferry 
service between Pelee Island and Ontario mainland ports has been subsidized solely by 
the federal Government. The present vessel, specifically designed for this service, was built 
by the Department of Transport at a cost of $567,000 and delivered in 1960 to the operating 
company under a charter hire agreement. 

On a number of occasions in recent years the Treasury Board has expressed approval 
of a policy of regarding subsidy assistance to ferry vessels, which are essentially links in 
provincial highway systems, as primarily a provincial responsibility. In accordance with 
this policy, the Government of Ontario was approached early in 1964 to ascertain the 
amount of assistance that it would be prepared to provide in sharing the amount of subsidy 
required to maintain the Pelee Island service. The Province declined to contribute on the 
grounds that its Highway Improvement Act only permits payment of a subsidy to a 
municipality which in turn is paying for a portion of the cost of operating a ferry service, 
and in this instance no municipality was involved. The attitude of the federal Government 
is that if the provincial Government is not prepared to seek some measure of municipal 
responsibility there would seem to be no valid reason why the Province should not enact 
legislation to directly assist the service if it feels that it is important to the economy of 
the area it serves. 

In approving a subsidy of $79,000 for the year 1964-65 (from which was recovered 
the charter hire fee of $51,000 for the year) the Treasury Board advised the Canadian 
Maritime Commission in November 1964 "that a significant provincial contribution must 
be obtained next year as continuation of federal subsidization at the present level will 



AUDITOR GENERAL'S REPORT 87 

definitely not be approved under any circumstances". Although the Commission again 
approached the provincial Government in January 1965, informing it of the stand taken 
by the Treasury Board, the Province again declined to contribute to the subsidy. 

In the circumstances the Treasury Board reversed its earlier stand and authorized 
the inclusion of a subsidy provision of the same amount in the Estimates for 1965-66. 
Interim supply has permitted the payment of $39,000, representing one-half of the subsidy. 

137. Subsidy for the construction of a floating fish processing plant, Liverpool, N.S. In 
May 1961 when the Minister of Transport made a statement of government policy with 
respect to ship operating and shipbuilding, the House of Commons was informed that a 
basic intent of the new policy was to make it possible for Canadian ship operators to 
obtain new vessels from Canadian shipyards at reasonable and competitive prices instead 
of being forced to have them built abroad because of lower construction costs that prevail 
in other countries. The intention was also to make it possible for the Canadian fishing 
industry to obtain the necessary degree of assistance to encourage it to modernize its fleet 
by the construction of new vessels in Canadian shipyards. 

A step in implementing the policy was the establishment of the Ship Construction 
Assistance Regulations to be administered by the Canadian Maritime Commission. 
Each application for assistance requires the approval of an interdepartmental committee 
established under the Regulations, the Minister of Transport and the Treasury Board. 
The Regulations make provision for the payment of a subsidy of 35% of the approved 
cost of a vessel of 200 tons gross tonnage or over that is not self-propelled and is intended 
for use in commercial enterprise. In April 1964 a Liverpool company, formed to engage 
in fishing and fish processing, and a shipbuilder made joint application for a subsidy in 
respect of what was described as a "steel barge (floating fish processing plant)". The 
contract price of $545,000 was later accepted as the approved cost for subsidy purposes. 
This cost included fish processing equipment to be affixed or built into the structure, the 
cost of non-Canadian materials and equipment being $127,000. On this basis the subsidy, 
when paid after acceptance of the barge from its builder and registration under the Canada 
Shipping Act, will amount to $191,000 of which a substantial portion will relate to the fish 
processing equipment including an amount of $45,000 in respect of materials and equip- 
ment of non-Canadian content. Our information indicates that the barge, while capable 
of mobility to a limited degree, is to be moored more or less permanently at Liverpool, 
N.S. to serve as a factory. 

Although the application for subsidy fell within the Ship Construction Assistance 
Regulations and was approved by the several responsible authorities, it seems questionable 
whether the subsidy program was ever intended to reduce the costs involved in the develop- 
ment of a site for, and the fitting out of, a fish processing plant. 

138. Awards under the Pension Act. Reference has been made in prior Reports to 
inconsistencies and ambiguities in the Pension Act, R.S., c. 207, that have made it difficult 
to determine whether awards under the Act, particularly those granted on a discretionary 
and compassionate basis and to persons in a dependent condition, were in conformity with 



88 AUDITOR GENERAL'S REPORT 

the provisions of the Act. The Public Accounts Committee in its Eighth Report 1964 
made certain recommendations designed to overcome these shortcomings (see Appendix 1, 
item 35) : 

(a) that the extent of the powers delegated to the Commission under section 25 of the Act, 
"to grant a compassionate pension, allowance or supplementary award in any case that 
it considers to be specially meritorious" where the applicant is otherwise unqualified to 
receive such an award, be clarified by defining the term "specially meritorious"; 

(b) that the ambiguity under the Act whereby section 40(2) appears to contemplate that 
a pension in respect of death of a member of the forces be limited to a single class of 
recipient whereas other sections of the Act provide that payments in respect of a death 
may be made concurrently to a widow (section 37), children (section 26) and parents 
(section 38) be eliminated; 

(c) that the inconsistency apparent under section 38 of the Pension Act where pensions 
awarded to widowed mothers under subsection (3) thereof, which requires that the 
parent must be incapacitated by mental or physical infirmity from earning a livelihood, 
are by reason of subsection (7) being continued in payment even though the widowed 
mothers have subsequently been able to undertake full-time employment, be removed; 

(d) that consideration be given to adding a section to the Pension Act similar to section 18 
of the War Veterans Allowance Act to deal with cases where it appears to the Commis- 
sion that there had been a deliberate disposal of property for the purpose of qualifying 
for a dependent parent award; and 

(e) that, having regard for section 40(1) of the Pension Act which provides that no person 
shall be awarded more than one pension in respect of death, the Commission recon- 
sider the legality of its decision to permit an award to a dependent parent of a second 
pension in respect of the death of a child after the rights to a pension awarded in respect 
of the death of another child have been lost under the terms of section 45(2) of the Act. 

The Minister of Veterans Affairs pointed out in a letter to the Chairman of the 
Public Accounts Committee, dated March 3, 1965, that definition of the term "specially 
meritorious" would limit the discretionary authority of the Commission; that the ambiguity 
in the Act with respect to concurrent payments to or on behalf of children, dependent 
parents and brothers and sisters could be eliminated only by withdrawal of their pension 
entitlement; that the Act was designed to encourage a widowed mother to seek employ- 
ment; that the Commission had no authority to reject a claim for pension so long as the 
applicant is in a dependent position even though the parent turned property over to a son 
or daughter for the sole purpose of qualifying for a pension; and that the parent should, 
in the event that she falls into a dependent condition, be equally entitled on account of 
each son. 

The Public Accounts Committee has not found it possible to consider the comments 
received concerning its previous recommendations and observations. When the Committee 
resumes its meetings, our follow-up report on these recommendations and observations 
as detailed in Appendix 1 will include reference to the Minister of Veterans Affairs' letter 
referred to above. 

In September 1965 the Treasury Board approved the appointment of a committee 
of three persons not connected with the Department of Veterans Affairs or the Canadian 
Pension Commission for a survey of the organization and work of the Canadian Pension 



AUDITOR GENERAL'S REPORT 89 

Commission and for preparation of a report and recommendations thereon to the Minister 
of Veterans Affairs. Included in the field to be studied is the interpretation of such sections 
of the Pension Act which, in the judgment of this committee, should be considered. 

139. War veterans allowances. In prior years' Reports comment has been made on 
various aspects of awards under the War Veterans Allowance Act, R.S., c. 340. The 1962 
Report referred to the fact that the provisions of the Act and its Regulations relating to 
financial penalties or imprisonment, or both, for making false or misleading statements or 
failing to disclose pertinent information which might have a bearing on the amount of 
the award, were seldom invoked by the War Veterans Allowance Board. Attention was 
also drawn to an anomaly whereby, although the awards are based ostensibly on need, 
the recipients' equities in mortgages and agreements for sale were not taken into account as 
personal property in the determination of entitlement under the Act. 

The 1963 Report repeated these comments and also drew attention to the fact that 
income of children involved in the award is treated as exempt income in the calculation 
of the allowance even though the recipient may qualify for increased allowance by consider- 
ing such children as dependents. 

The Public Accounts Committee after reviewing these comments made the following 
recommendations in its Eighth Report 1964 (see Appendix 1, item 36): 

(a) the Committee, after taking note of the increasing number of overpayments arising 
mainly from veterans making false or misleading statements, and of the fact that, 
although 80 such cases had been referred to the Board by the Auditor General in 1962 
and 1963, in none of these had legal action been instituted, recommends that all cases 
of deliberate deception which come to notice be vigorously prosecuted; 

(6) that the Act should be amended to recognize mortgages receivable and agreements for 
sale as either personal property or an interest in real property. In the meantime, where 
it appears to the Board that the terms of a mortgage receivable or agreement for sale 
are unrealistic in relation to the life expectancy of the individual and the going market 
rates, the Board should deem the return from these assets to be at a reasonable monthly 
rate; and 

(c) that in cases where the presence of a child is the reason for an award at married rates, 
the income of the child, except income specifically exempted under the Act, be taken 
into account in determining the amount of the award. 

The Minister of Veterans Affairs in a letter to the Chairman of the Public Accounts 
Committee dated March 3, 1965, indicated that full consideration would be given to the 
comments of the Committee with respect to a stiffer line on wrongdoers but that it had been 
the Department's experience that the Courts had invariably dealt leniently with veterans. 
The Minister considered that the policy with respect to mortgages receivable and agree- 
ments for sale should not be changed as it had proved eminently satisfactory over the 
years. Neither did he feel that any change should be made with respect to income of de- 
pendent children, noting that the cases where a dependent child is in receipt of assessable 
income are rare. The Minister pointed out that in considering the three recommendations 
of the Public Accounts Committee he was mindful of the fact that the War Veterans 
Allowance Act is welfare legislation and, therefore, should be administered with a broad 
and liberal interpretation. 



90 AUDITOR GENERAL'S REPORT 

The Public Accounts Committee has not found it possible to consider the comments 
received concerning its previous recommendations and observations. When the Committee 
resumes its meetings, our follow-up report on these recommendations and observations 
as detailed in Appendix 1 will include reference to the Minister of Veterans Affairs' letter 
referred to above. 

Another problem associated with the administration of the War Veterans Allowance 
Act stems from the necessity of determining the value of property used by an applicant 
as a residence. Regulations provide that 5% of the amount by which the fair and reasonable 
value of the property exceeds $9,000 (the exemption provided in the Act which has been 
increased to $10,000, effective June 30, 1965) shall be considered as income. The War 
Veterans Allowance Board uses the amount that the veteran invested in the residence 
as the fair and reasonable value in calculating the allowance to be paid to an applicant. 
As the acquisition of the property may have taken place many years before the determina- 
tion of the entitlement, and in the interval property values may have greatly increased, 
the practice followed by the Board leads to some unusual results, of which the following 
is an example. The widow of a veteran was granted an allowance of $143 per month with 
effect from March 6, 1965. In the calculation of her entitlement, the property on which 
she resides was valued at $9,300, the purchase price in 1946. The property has been for 
sale at $89,000 for the past five years, although the realtor with whom the property is 
listed believes that $60,000 would be more realistic. 

140. Unpaid accounts carried forward to new fiscal year. Appropriations for the De- 
partment of National Defence for 1964-65 were insufficient to provide for all accounts 
coming due for payment in the course of the year, and accounts totalling $7,308,000 were 
held over to be paid out of 1965-66 funds, as follows: 

Vote 15 Royal Canadian Navy $ 1 ,932,000 

Vote 20 Canadian Army 493 ,000 

Vote 25 Royal Canadian Air Force 4,694,000 

Vote 35 Defence Research and Development 189 ,000 

$ 7,308,000 



Supplementary Estimates (D) — the final supplementary estimates of the year- 
included an amount of $7 million for the Canadian Army which was not quite sufficient 
to cover all outstanding accounts. No final supplementary estimates were requested for 
the other Services. 

Funds provided by Vote 15 of the Department of Citizenship and Immigration for 
administration and operation of the Indian Affairs Branch were insufficient for payment 
of all accounts of the year, and accounts totalling $1,080,000 were held over for payment in 
1965-66. No supplementary estimate was requested. 

Another charge applicable to the year but which has been carried forward as part of 
the current assets item "Departmental working capital advances and revolving funds" 
is an amount of $1,318,000, included in the balance of $23,152,000 in the "Agricultural 
Commodities Stabilization Account" (see paragraph 171). This is the amount by which 



AUDITOR GENERAL'S REPORT 91 

the $57,118,000 provided by Appropriation Act No. 2, 1965, Department of Agriculture 
Vote 80d, the final Supplementary Estimates of the year, fell short of meeting the balance 
of the loss of $2,555,000 brought forward from the previous year and the loss of $55,881,000 
(exclusive of the estimated cost of major services provided without charge by government 
departments) experienced by the Agricultural Stabilization Board during the year (see 
also paragraph 213). 

141. Losses reported in the Public Accounts. Section 98 of the Financial Administration 
Act directs that "every payment out of the Public Officers Guarantee Account and the 
amount of every loss suffered by Her Majesty by reason of defalcations or other fraudulent 
acts or omissions of a public officer, together with a statement of the circumstances, shall 
be reported annually in the Public Accounts". 

The statements of losses included in the Public Accounts for 1964-65 were examined 
and it was ascertained that every loss during the year, which had been observed in the 
audit as being of a nature requiring to be reported in the Public Accounts in accordance 
with the foregoing direction, had been included in the listings. Losses in departments 
other than the Post Office numbered 7 and amounted to $7,270. Of these, 3 involving $693 
were recovered in full and there was a partial recovery of $2,133 in one other case. 

Reference was made in last year's Report (paragraph 93) to losses totalling $168,263 
which had been shown as outstanding at March 31, 1963. Some of these amounts dated 
back to 1952-53 and no final action by way of adjustment, recovery or charge to the Public 
Officers Guarantee Account had been reported. Although the attention of the Treasury 
Board had been directed to these long-outstanding amounts in October 1963 and again in 
February 1965, there remained 16 balances totalling $126,983 still to be cleared at March 
31, 1965. Additional balances totalling $65,928 were outstanding at March 31, 1965 in 
respect of 9 losses which had been reported in 1963-64. 

Losses suffered by the Post Office Department in 1964-65 numbered 97 and amounted 
to $67,969. Of these, 62 totalling $27,276 were recovered in full, while partial recoveries 
amounted to $8,467. 

142. Non-productive payments. Since 1961 there has been included in the Auditor 
General's annual Report to Parliament at the request of the Public Accounts Committee 
a listing of the non-productive payments which came to our notice in the course of our 
audit. 

After considering the listings of the non-productive payments that were included in 
the 1962 and 1963 Reports, the Committee in its Sixth Report 1964, tabled in the House 
on October 20, 1964, expressed concern at the increasing number which were being noted 
and went on to state : 

Since the majority of these cases involved expenditure by three departments, namely 
Public Works, National Defence and Transport, members of the Committee questioned the 
deputy ministers of these three departments closely as to the causes and reasons of many 
of the larger losses. A number of these losses arose from circumstances beyond the control 
of the department named, for example Public Works in its role as a service department. 



92 AUDITOR GENERAL'S REPORT 

The Committee is of the opinion that the majority of these losses must be attributed 
either to failure to exercise normal commercial prudence in entering into contractual obli- 
gations or to lack of effective departmental specifications, organization or co-ordination. It 
also believes that failure by departments to pinpoint blame for many such losses and to 
take corrective action accordingly is a contributing factor. 

The Committee reiterates the request it made to the Auditor General in 1961 concerning 
this type of loss, namely that in his future annual reports to the House of Commons the 
Auditor General continue to include listings of all non-productive payments coming to his 
notice in the course of his audit. 

In our 1964 Report which, as stated in paragraph 4 of this Report, has not yet been 
referred to the Public Accounts Committee, 35 cases of non-productive expenditures were 
listed in Appendix 2. These, together with 2 other examples of non-productive expenditures 
noted and commented upon under Comments on Expenditure and Revenue Transactions, 
involved an estimated $2,089,000. 

In view of the comments of the Public Accounts Committee quoted above, the Audit 
Office has endeavoured this year to pinpoint more closely the underlying reasons for this 
type of cost, particularly where the circumstances of the non-productive payment appeared 
to have been beyond the control of the department or agency against whose appropriation 
it was charged. We believe this should enable closer study to be given to the individual 
cases both by those responsible and by the members of the House and the Public Accounts 
Committee. 

The non-productive payments listed by the Audit Office each year are those payments 
coming to the notice of the Auditor General in the course of his audit. It is important to 
understand that many of them have their origin in transactions commenced in prior 
years and that they come to notice only when final settlement is made during the year 
under audit. 

In this Report we have dealt with 37 cases of non-productive payments estimated at 
$22,737,000. Of these, 21 are included in the foregoing paragraphs while the remaining 16 
cases are as follows : 

1. PAYMENT OF SALARY TO A JUDGE DURING A PERIOD OP LEAVE OF ABSENCE. Pending 

the disposal of criminal charges that had been laid against him, a judge of the Superior 
Court of Quebec was granted leave of absence from May 1, 1964 under the authority 
of the Governor in Council. The covering Order in Council did not stipulate whether 
leave would be with or without pay. On October 23, 1964 the judge was convicted on 
one count of perjury and sentenced to imprisonment for two years. He appealed the 
conviction and in October 1965 the Quebec Court of Appeal granted him a new trial. 
To March 31, 1965 the judge had been paid $19,250 in salary while on leave. 

2. CONSTRUCTION OF FUEL STORAGE FACILITIES, SHELBURNE NAVAL BASE, N.S. — In May 

1963 a contract was entered into for the construction of fuel storage facilities at the 
Royal Canadian Navy base at Shelburne in the amount of $724,800, of which $586,800 
was firm, the remainder being based on estimated quantities at firm unit prices. En- 
gineering and design changes increased the contract price by $65,300. In addition, the 
contractor claimed $185,900 for prolongation of the contract due to changes imposed 
by the Crown, and for extra dredging, rock excavation, steel piling, and the removal of 
and repairs to the pipe line made necessary by unforeseen conditions encountered on 
the marine floor. This claim was settled for $130,300. 



AUDITOR GENERAL'S REPORT 93 

Part of the aluminum pipe specified in the original design collapsed and when 
removed for repair it was also found to be severely corroded. Before submerging the 
repaired pipe the contractor expressed doubts about its suitability for underwater 
installation under the conditions encountered and gave notice that he would not be 
responsible for its performance. As there was also a risk of damage to the fishing in- 
dustry if the pipes ruptured, it was decided to replace the aluminum with steel piping 
at a cost of $118,600. This brought the final cost of the project to $1,039,000. 

3. ADDITIONAL COSTS FOR CONSTRUCTION OF A COMMUNICATIONS BUILDING AND SERVICES 

for the Canadian army, penhold, alberta. — In August 1961 a contract was 
entered into for the construction of a communications building and services at Penhold 
in the amount of $2,150,000, of which $2,129,000 was firm, the remainder being based 
on estimated quantities at firm unit prices. Design and engineering changes increased 
the cost by $70,900 to $2,220,900. 

In December 1963 the contractor submitted a claim in the amount of $228,300 
for additional costs as a result of delays attributed to changes imposed by the Crown 
and in carrying out the work as directed by the Crown. The claim was settled for $65,500, 
bringing the final cost of the project to $2,286,400. 

4. DAMAGE CLAIM RESULTING FROM EXPROPRIATION OF LAND, PENHOLD, ALBERTA. In 

June 1963, five hundred and fourteen acres were expropriated to extend the runways of 
R.C.A.F. Station, Penhold for jet training. On September 19, 1963 the Treasury 
Board authorized an advance payment of $100,000 for the property. 

Prior to any payment being made, negotiations with the Department of Transport 
indicated that sufficient air space would not be available in this area to make jet training 
at Penhold feasible. Accordingly, the plan to expand the station was cancelled and in 
October 1963 the expropriation was abandoned and the land returned to the former 
owner. 

After the abandonment the owner claimed reimbursement for all losses and damages 
resulting from the expropriation of the land and subsequent interference with his farm 
production, and in March 1965 he was paid $15,000 in full settlement of his claim. 

5. ADDITIONAL COSTS DUE TO FAULTY SPECIFICATIONS R.C.A.F. STATION, SUMMERSIDE, 

p.e.i. — In June 1962 Defence Construction (1951) Limited entered into a contract, 
calling for completion by September 14, 1962, for the re-roofing of hangars at the 
R.C.A.F. Station, Summerside, at a firm price of $124,000. In the early stages of the 
contract it was found that an acceptable wrinkle-free roofing finish could not be obtained 
by using the specified cold process method for application of the roofing felt approved by 
the Department of National Defence. The work was suspended while various alternative 
methods of cold process applications were tested. With the onset of winter the job was 
closed down and all equipment and unused material were placed in storage pending 
resumption of work in the spring. In the meantime, it was established that the roofing 
felt could be successfully applied by using propane-heated rollers. In June 1963 work 
was recommenced using this process and was completed on September 26, 1963. The 
contractor submitted a claim of $15,000 for additional costs arising from the prolonga- 
tion of the contract and from closing down and reopening the job. The claim was 
settled for $10,689 in June 1964. 

6. ADDITIONAL COSTS FOR INSTALLATION OF ACTION SPEED TACTICAL TEACHER AT JOINT 

maritime warfare school, Halifax, n.s. — A contract was entered into for the instal- 
lation of an Action Speed Tactical Teacher at the Joint Maritime Warfare School at 
an estimated cost of $74,000, the work to begin on September 1, 1959 and be completed 
by March 31, 1960. 



AUDITOR GENERAL'S REPORT 

The equipment was to be installed on a false wooden floor supplied by the Navy 
under separate contract. A delay occurred when the Naval Base Fire Chief prohibited 
the use of wood. He finally settled for a steel frame and plywood treated with fire- 
retarding paint. In December, after a delay of fourteen weeks, work on the floor had 
progressed sufficiently for the contractor to recommence installation activities. As a 
result of this delay, the contractor was paid $4,000 for additional labour in connection 
with removing, storing and rehandling of cables and equipment, bringing the final cost 
of the contract to $78,000. 

cost of delay in returning rented imprinters. — In 1963 the Department of Defence 
Production, on behalf of the Unemployment Insurance Commission, entered into a re- 
newal contract for the rental of 2,500 aluminum plate imprinters for the period from 
July 1, 1963 to March 31, 1964 at a rate of $1 per unit per month, payable in advance. 
When the imprinters were not returned by the expiry date of the contract the supplier 
claimed $2,500 rental for the month of April 1964. Negotiations with the supplier led to 
his forgoing rentals on the 985 imprinters which had been received by him in the first 
seven days of April and the Commission paid rentals of $1,515 on the remaining im- 
printers although none of them were used in the period. 

ADDITIONAL COST DUE TO DELAY IN AWARDING CONTRACT, BANFF- JASPER HIGHWAY. — 

In 1961 the Department of Public Works obtained tenders for the construction of a 
bridge on the Banff-Jasper Highway for the Department of Northern Affairs and Na- 
tional Resources. Although the tenders were opened on September 19th there was a 
delay of two months before a contract was awarded to the lowest tenderer, whose bid of 
$254,000 was $30,000 less than that of the second low bidder. In addition to the delay 
caused by the normal procedure of checking the successful tenderer's design and com- 
municating with him in that regard, there was a further delay while contracts generally 
wero reviewed to see which ones could be deferred. Subsequently the contractor, who 
lost money on the project, presented a claim for extra expenses incurred because of the 
delay in the placing of the contract. His contention was that wet autumn weather, 
followed by an extremely cold period, had forced him to produce concrete aggregates 
from frozen material under much more costly conditions than would have been the case 
if the work had been performed in early autumn. During the year he was paid $20,000 
in partial compensation for additional costs which he attributed to the delay. In author- 
izing payment of this claim, the Treasury Board made an exception to its policy of not 
accepting claims based on the delay in the award of a contract. 

ADDITIONAL COSTS DUE TO CONSTRUCTION DELAY, POINTE-AU-PERE, QUE. In March 

1964 the Department of Public Works awarded contracts for the improvement of facili- 
ties at Pointe-au-Pere and Baie Comeau in connection with the operation of a ferry service 
between the two communities. Shortly afterwards the operators of the ferry expressed 
concern that both terminals were to be reconstructed during the season of heaviest 
traffic because this would interfere seriously with the maintenance of their schedule. 
The conclusion was reached that the only acceptable procedure that would ensure the 
continued operation of the ferry would be to delay the Pointe-au-Pere project for ap- 
proximately three months. The contractor agreed on condition that he be reimbursed 
for additional costs incurred as a result of the delay. During the year he was paid 
$14,938 in settlement of his claim. 



10. ADDITIONAL COST DUE TO CONSTRUCTION DELAY, CLARENVILLE, NFLD. — The Department 

of Public Works awarded a contract in 1963 for the construction of the main haulout 
section for a marine dry dock facility at Clarenville required by the Department 
Transport. One phase of the contract involved the dredging of an area to accommodate 



of 

ite 



AUDITOR GENERAL'S REPORT 95 

the underwater track, including the excavation of some bedrock. Borings had previously 
been taken at the site of the work but not at its outer end because a projection of the 
dip of the rock, as indicated by the borings in the inner area, showed the top surface of 
the rock passing below the maximum dredged depth required. As excavation proceeded, 
however, bedrock was encountered at the outer end which necessitated a change in the 
contractor's method of operation and delayed progress of the work. This resulted in a 
decision to close down the undertaking for the winter months of 1963-64 because of the 
effect of the delay on other phases. During the year the contractor was paid $12,909 to 
compensate him for additional costs incurred due to the delay and the closing down 
and reopening of the work. 

11. cost of remedial work during construction period, Ottawa. — The contractor for 
the construction of the Trade and Commerce Building went into bankruptcy in 1957 
and a contract for completion of the work was awarded to another company. Where 
possible, new agreements were negotiated with the sub-contractors of the bankrupt 
company. The original electrical sub-contractor undertook to proceed and the Depart- 
ment of Public Works agreed that if it was found necessary to replace or rehabilitate 
material or equipment "beyond that normally experienced on a project of this size and 
duration", such work would be carried out under the direction of the general contractor 
on a job work order basis. In 1958 the sub-contractor presented a claim for extra costs, 
including an amount for the rehabilitation of elements of his work after the post-bank- 
ruptcy shutdown. Until 1964 the Department resisted the claim, taking the view that 
the commitment with regard to rehabilitation costs was intended to apply only to a 
case where the sub-contractor had taken all reasonable precautions to protect his work 
and, despite this, corrective measures were required. In that year, however, the con- 
clusion was reached that certain remedial costs stemming from condensation and other 
moisture conditions in the building during the shut-down period, at which stage it was 
not weatherproof, could be recognized and $12,190 was paid to the sub-contractor. 

12. additional cost due to construction delay, calgary, alta. — In 1958 the Depart- 
ment of Public Works awarded a contract for the construction of a postal terminal 
building at Calgary. During the year a settlement of $8,150 was made with the con- 
tractor — in respect of a much larger claim — for reimbursement of additional costs 
resulting from a number of delays. The major part of the claim centered around the 
fact that the details of the mail handling equipment had not been finalized prior to the 
commencement of building construction. The late award of the separate equipment 
contract did not permit the building contractor to complete his work in certain areas 
as expeditiously as planned, with the result that site overhead costs were abnormal. 

13. cost resulting from discrepancy in specifications, matapedia, que. — -In October 
1963 a contract was awarded by the Department of Public Works for repairs to a bridge 
at Matapedia. Because of the age of the bridge special bearing pads were required to 
reduce the residual stresses on the bridge members. The Department's specifications 
for the work required that pads of a certain grade be used, but also required that the 
pads comply with the requirements for such pads appearing in a publication which 
contained standard specifications for highway bridges. As the departmental requirement 
was at variance with that contained in the publication, a situation developed which led 
to a delay of several weeks in the procurement of the proper pads. The delay forced a 
temporary shut-down of the work and extension into colder weather at extra cost to the 
contractor. In December 1964 he accepted a payment of $7,622 in settlement of a larger 
claim for costs arising from the discrepancy in the specifications. 



96 AUDITOR GENERAL'S REPORT 

14. additional cost due to construction delay, Ottawa. — During the construction of 
the foundation work for an administration building for the Department of Agriculture, 
difficulties were encountered in the initial pile driving operations. The investigation and 
redesign which were required resulted in a succession of notices of change to the con- 
tractor over a period of several weeks. His planned schedule was disrupted and delayed 
by this circumstance as well as by the testing of the piles previously driven. During 
the year he was allowed $5,324 in recognition of the fact that his supervisory staff and 
key operating personnel had been unable to work at full capacity during the redesign 
period. 

15. court award to architect in respect of abandoned work, st. John's, nfld. — In 
1954 an architect was engaged by the Department of Public Works in connection with 
a proposed postal terminal building at St. John's. After he had submitted preliminary 
plans for approval and had proceeded with the preparation of working drawings, it was 
decided that he should work in association with another architect. Subsequently he 
presented a claim to the Department for work done to that point, stating that changes 
in requirements and ideas were so extensive that it had been necessary to abandon the 
early results of his undertaking. The Department resisted the claim but in 1964 he 
was awarded $4,147, with costs, in the Exchequer Court of Canada in respect of the 
abandoned work. 

16. Canadian government participation in expo '67. — In January 1964 a firm of archi- 
tects was engaged by the Department of Trade and Commerce to design plans and to 
provide professional services for the erection of the Canadian Government Pavilion, 
comprising six structures and supporting facilities, at the Canadian Universal and 
International Exhibition, Montreal, 1967. Subsequently, the Treasury Board approved 
the award of a contract for construction of the Pavilion for $6,138,000. The land on 
which the Pavilion is being constructed has been reclaimed by the City of Montreal 
at a cost of several million dollars and the site for one of the buildings, to include admin- 
istrative offices, a theatre and an arts centre, is estimated to be worth in excess of 
$400,000. 

The initial concept envisaged a project of temporary buildings and structures to 
be dismantled at conclusion of the Exhibition. However, a Cabinet decision of July 
1964 accepted the suggestion that the building to house the theatre be a permanent 
structure and become a gift to the National Theatre School of Canada, Montreal, 
provided the School negotiated possession of the land from the City. The architects 
were then informed and directed to proceed accordingly. In December 1964 the School 
had not yet acquired the land and, due to the limited time available for completion of 
the project, it was necessary to abandon the plans for a permanent building. 

As a result the architects were paid $28,000 for plans which could not be used. 

Summary of Assets and Liabilities 

143. The Statement of Assets and Liabilities as at March 31, 1965, with comparative 
figures at the end of the preceding year, prepared by the Department of Finance for 
inclusion in the Public Accounts and certified by the Auditor General in accordance with 
section 64 of the Financial Administration Act, is reproduced as Exhibit 2 to this Report. 



AUDITOR GENERAL'S REPORT 97 

Assets 

144. The following table lists the assets at March 31, 1965, by main headings in the 

Statement of Assets and Liabilities, in comparison with the corresponding balances at the 
close of the two previous fiscal years : 

March 31, 1963 March 31, 1964 March 31, 1965 

Current assets $ 820,271,000 $ 1,286,794,000 $ 1,070,688,000 

Advances to the Exchange Fund 

Account 2,736,000,000 2,601,000,000 2,621,000,000 

Investment in special United States 

of America securities — Columbia 

River Treaty — — 219,479,000 

Sinking fund and other investments 

held for retirement of unmatured 

debt 22,312,000 — 5,441,000 

Loans to and investments in Crown 

corporations 4,468,119,000 4,584,194,000 4,996,301,000 

Loans to national governments 1 , 210 , 777 , 000 1 , 195 , 685 , 000 1 , 206 , 577 , 000 

Other loans and investments 1,110,655,000 1,197,816,000 1,139,382,000 

Securities held in trust 26,016,000 38,882,000 53,060,000 

Deferred charges 936,644,000 400,361,000 208,585,000 

Suspense accounts 136,000 141 ,000 — 

Inactive loans and investments 94 , 824 , 000 94 , 824 , 000 94 , 824 , 000 

Total recorded assets 11,425,754,000 11,399,697,000 11,615,337,000 

Less — Reserve for losses on realiza- 
tion of assets 546,384,000 546,384,000 546,384,000 

Net recorded assets $ 10,879,370,000 $ 10,853,313,000 $ 11,068,953,000 



145. Current assets. The balances included under this heading at March 31, 1965, 

with the comparable balances at the close of the two previous years, were: 

March 31, 1963 March 31, 1964 March 31, 1965 

Cash $ 511,347,000 $ 984,643,000 $ 850,282,000 

Departmental working capital advances 
and revolving funds: 
Agricultural Commodities Stabiliza- 
tion Account 139,043,000 63,954,000 23,152,000 

Defence Production Revolving Fund . 39 , 068 , 000 27 , 791 , 000 30 , 157 , 000 

Bullion and coinage accounts 27 , 212 , 000 29 , 401 , 000 18 , 704 , 000 

Stockpiling of uranium concentrates. . — 13,537,000 24,414,000 

Other 37,944,000 34,123,000 37,724,000 

243,267,000 168,806,000 134,151,000 

Securities held for the Securities Invest- 
ment Account 33,480,000 99,860,000 57,120,000 

Other current assets 32, 177,000 33,485,000 29, 135,000 

$ 820,271,000 $ 1,286,794,000 $ 1,070,688,000 



98 AUDITOR GENERAL'S REPORT 

The $23,152,000 balance of the Agricultural Commodities Stabilization Account at 
March 31, 1965 was $40,802,000 less than the corresponding amount at the end of the 
preceding year. This was mainly due to the sale of residual stocks of butter accumulated 
from 1958 to 1962. 

The amount of $24,414,000 for stockpiling of uranium concentrates represents charges 
to Department of Trade and Commerce Vote L63c, 1963-64, and Vote L37a, 1964-65, for 
the acquisition of uranium concentrates by Eldorado Mining and Refining Limited on 
behalf of Her Majesty in right of Canada and for the cost of stockpiling the uranium 
concentrates so acquired. 

The $57,120,000 balance of the Securities Investment Account represents, at amortized 
cost, temporary holdings of securities of Canada by the Minister of Finance under the 
authority of section 17 of the Financial Administration Act. 

146. Advances to the Exchange Fund Account. This Account is operated by the Bank 
of Canada on behalf of the Minister of Finance, and advances are made by the Minister 
from time to time within the maximum ($3,000,000,000 at March 31, 1965) authorized by 
the Governor in Council under section 23 of the Currency, Mint and Exchange Fund Act, 
R.S., c. 315. The advances to the Account at each year-end are included in the Statement 
of Assets and Liabilities at their total, less repayments, with a parenthetical note giving 
the market value of the investments from the advances. Thus at March 31, 1965 the amount 
shown for Advances to the Exchange Fund Account was $2,621,000,000, being the total 
of the advances less repayments, whereas the market value of investments from advances 
was $2,653,407,000, indicating an unrecorded surplus of $32,407,000. By comparison, at 
the close of the preceding year there was an unrecorded surplus of $30,200,000. 

A summary of the transactions in the Account for its financial year ended December 
31, 1964 is included in paragraph 228 of this Report. 

147. Investment in special United States of America securities — Columbia River Treaty. 
This investment was approved by Order in Council P.C. 1964-1427 of September 10, 1964, 
pursuant to Vote L17a of the Appropriation Act No. 7, 1964: 

To provide for and authorize the purchase out of United States dollars paid to Canada, 
pursuant to the Treaty between Canada and the United States of America relating to 
co-operative development of the water resources of the Columbia River Basin, together 
with any Protocol or Exchange of Notes relating thereto, of such obligations of the Govern- 
ment of the United States as may be approved by the Governor in Council, and the sub- 
sequent disposition of such obligations. . . . 

148. Sinking fund and other investments held for retirement of unmatured debt. This 
item consists of unmatured securities of the Government of Canada purchased at a dis- 
count during the year. The amount represents the purchase price of the securities less 
interest earned since date of purchase. 









AUDITOR GENERAL'S REPORT 



99 



149. Loans to and investments in Crown corporations. The following schedule shows 
the nature of these loans and investments at March 31, 1965: 



Central Mortgage and Housing Corpora- 
tion 

Canadian National Railways 

Farm Credit Corporation 

The St. Lawrence Seaway Authority . . . 

National Harbours Board 

Export Credits Insurance Corporation . 

Atomic Energy of Canada Limited .... 

National Capital Commission 

Canadian Overseas Telecommunication 
Corporation 

Polymer Corporation Limited 

Northern Canada Power Commission . . 

Canadian Broadcasting Corporation . . . 

Eldorado Mining and Refining Limited 

Canadian Arsenals Limited 

Bank of Canada 

Canadian Commercial Corporation .... 

Canadian National Railways — re 
Yarmouth-Bar Harbour ferry 

Canadian National (West Indies) 
Steamships Limited 

Canadian Patents and Development 
Limited 

$ 1,084,671,000 



Capital stock 






at cost 


Advances 


Total 




$ 2,137,844,000 


$ 2,137,844,000 


1,020,207,000 


413,932,000 


1,434,139,000 




441,341,000 


441,341,000 




409,224,000 


409,224,000 




199,833,000 


199,833,000 


5,000,000 


86,767,000 


91,767.000 


15,000,000 


50,698,000 


65,698,000 




59,851,000 


59,851,000 




55,054,000 


55,054,000 


30,000,000 




30,000,000 




27,797,000 


27,797,000 




17,250,000 


17,250,000 


8,247,000 




8,247,000 




7,500,000 


7,500,000 


5,920,000 




5,920,000 




3,500,000 


3,500,000 




715,000 


715,000 


1,000 


324,000 


325,000 


296,000 




296,000 



$ 3,911,630,000 



4,996,301,000 



The total of $4,996,301,000 (an increase of $412 million over the previous year) does 
not represent the total equity of the Government of Canada in its Crown corporations 
at March 31, 1965. This equity in fact amounted to $6,492,951,000 as shown by their 
individual financial statements published in Volume III of the Public Accounts. The 
principal reason for this is that the Government of Canada maintains its accounts on a 
modified cash basis which does not provide for recording as assets such items as surpluses 
of Crown corporations or the cost of capital assets which were charged by the Government 
as expenditure. In no sense does the Statement of Assets and Liabilities of the Government 
of Canada purport to be a consolidation including the accounts of its wholly-owned 
corporations. On the other hand, the corporations maintain their individual accounts on 
the accrual accounting basis followed in commercial practice, and in a number of cases 
have fiscal years conforming to the cycle of their individual operations rather than the 
April 1 to March 31 fiscal year used by the Government. 

The excess of $1,496,650,000 existing at March 31, 1965 as a result of the fore- 
going is reconciled and explained in Appendix 12, Section 9 of Volume I of the Public 
Accounts entitled "Government of Canada Equity in Crown Corporations as at March 
31, 1965". 



100 AUDITOR GENERAL'S REPORT 

The advances to Central Mortgage and Housing Corporation increased by $222 
million resulting from additional advances of $248 million, less repayments of $75 million, 
pursuant to section 22 of the Central Mortgage and Housing Corporation Act, R.S., c. 46, 
together with advances of $71 million, less repayments of $19 million, in respect of projects 
entered into with provinces, municipalities and universities. Other advances were repaid 
to the extent of $3 million. 

The total for the Canadian National Railways reflects a net increase of $23 million 
due to a further investment of $25 million in 4% preferred stock in the Company pursuant 
to section 9 of the Canadian National Railways Financing and Guarantee Act, 1964, 
partly offset by a reduction of $1.4 million in temporary loans required by Air Canada. 

The amount for Farm Credit Corporation shows an increase of $102 million over the 
preceding year due to further loans of $112 million under the Farm Credit Act, 1959, c. 43, 
less repayments of $13 million, and an additional $3.6 million subscription to the capital 
of the Corporation by the Government under section 12 of the Act. 

The amount shown for The St. Lawrence Seaway Authority reflects a decrease of 
$6.5 million comprising a net decrease of $25 million in deferred interest on loans, offset by 
additional loans of $18.5 million during the year (see paragraphs 161 and 209). 

The amount shown for Export Credits Insurance Corporation reflects an increase of 
$33 million in advances to enable the Corporation to provide long-term financing of export 
sales of capital goods. 

There was an increase of $12 million in advances to Atomic Energy of Canada Limited 
mainly to finance the construction of the Douglas Point, Ontario, generating station. 

Loans to the National Capital Commission increased by $6.9 million. 

Advances to the Northern Canada Power Commission increased by $5.4 million. 

In 1964-65, the financing of the capital requirements of the Canadian Broadcasting 
Corporation was by way of loans and advances rather than by an expenditure appropriation 
as was formerly the case. These advances, under the authority of Vote L10, Appropriation 
Act No. 10, 1964 totalled $14 million and are to be repaid by equal annual instalments 
over a twenty-year period. 

150. Loans to national governments. The following is a listing of the balances of these 
loans at March 31, 1965 in comparison with the balances at the close of the two previous 
years : 

March 31, 1963 March 31, 1964 March 31, 1965 



Belgium $ 32,298,000 $ 29,991,000 $ 27,684,000 

France 67,600,000 67,600,000 67,600,000 

India 20,117,000 25,424,000 19,326,000 

Netherlands 32,130,000 32,130,000 32,130,000 

United Kingdom 1,057,045,000 1,039,277,000 1,058,863,000 

Other countries 1,587,000 1,263,000 974,000 



$ 1,210,777,000 $ 1,195,685,000 $ 1,206,577,000 



AUDITOR GENERAL'S REPORT 101 

The 1964 annual instalment of principal and interest on the loan to the United King- 
dom was deferred by the United Kingdom in accordance with the provisions of the United 
Kingdom Financial Agreement Act. The increase in the indebtedness at March 31, 1965 
results from the addition of interest of $20 million for 1964 which was deferred to De- 
cember 31, 2002. 

The reduction in loans to India resulted from a net repayment of $1.4 million on the 
loans for the purchase of aircraft and spare parts and a repayment of $4.7 million of loans 
for the purchase of wheat and flour. No payments were due from France and the Nether- 
lands during the year because of special payments made in 1962-63. 

151. Other loans and investments. The balances comprising this asset item at March 31, 
1965 with the comparable balances at the end of the two previous years, were : 

March 31, 1963 March 31, 1964 March 31, 1965 



Subscriptions to capital of and working 
capital advances and loans to inter- 
national organizations $ 693 , 998 , 000 $ 702 , 130 , 000 $ 709 , 754 , 000 

Veterans' Land Act advances 224 , 486 , 000 243 , 327 , 000 255 , 66 1 , 000 

Less : Reserve for conditional benefits . 28 , 467 , 000 26 , 357 , 000 24 , 339 , 000 

196,019,000 216,970,000 231,322,000 

Loans to provincial governments 116,818,000 113,652,000 98,436,000 

Temporary loans to Old Age Security 

Fund 41,679,000 99,960,000 24,954,000 

Housing projects for the Canadian Forces 12,514,000 17,930,000 20,386,000 
Advances pursuant to the Municipal 

Development and Loan Act — — 9 , 474 , 000 

Less: Reserve for forgiveness of in- 
debtedness — — 1,837,000 

7,637,000 
Balances receivable under agreements of 

sale of Crown assets 8,303,000 5,959,000 4,147,000 

Other balances 41,324,000 41,215,000 42,746,000 



$ 1,110,655,000 $ 1,197,816,000 $ 1,139,382,000 



The following is a listing of the balances comprising the $709,754,000 shown for the 
first item in the above table at March 31, 1965: 

Subscriptions to capital: 

International Monetary Fund $ 577,250,000 

International Bank for Reconstruction and Development 80 , 483 , 000 

International Development Association 40 , 668,000 

International Finance Corporation 3 , 522 ,000 



701,923,000 
Working capital advances and loans 7 , 831 ,000 



$ 709,754,000 



During the year Canada subscribed an additional $7.9 million to the capital of the 
International Development Association. 



102 AUDITOR GENERAL'S REPORT 

The loans to provincial governments at March 31, 1965 with the comparable balances 
at the end of the two previous years were : 

March 31, 1963 March 31, 1964 March 31, 1965 



Newfoundland $ 501,000 $ 498,000 $ 493,000 

Nova Scotia 7,317,000 7,230,000 7,139,000 

New Brunswick 31,084,000 34,371,000 32,788,000 

Manitoba 12,331,000 11,643,000 10,708,000 

Saskatchewan 26,874,000 27,231,000 28,461,000 

Alberta 7,170,000 6,743,000 6,310,000 

British Columbia 18,450,000 15,501,000 12,537,000 

103,727,000 103,217,000 98,436,000 

Provincial Tax Collection Agreements 

Account 13,091,000 10,435,000 — 

$ 116,818,000 $ 113,652,000 $ 98,436,000 



The reduction of $75 million in temporary loans to the Old Age Security Fund is the 

result of the surplus from transactions during 1964-65 in the special account provided for 
by section 11 of the Old Age Security Act, R.S., c. 200. The following is a summary of 
the transactions relating to the Fund during the past three years: 

1962-63 1963-64 1964-65 

Collections of tax 

On sales $ 302,239,000 $ 331,760,000 $ 383,150,000 

On personal incomes 273 , 650 , 000 302 , 600 , 000 431 , 900 , 000 

Oncorporationincom.es 115,250,000 115,750,000 145,250,000 

691,139,000 750,110,000 960,300,000 

Payments of pensions under the Old Age 

Security Act 734,382,000 808,391,000 885,294,000 

Deficiency (surplus) for the year 43,243,000 58,281,000 (75,006,000) 

Preceding year's balance brought for- 
ward (1,564,000) 41,679,000 99,960,000 

Deficit at year-end $ 41,679,000 $ 99,960,000 $ 24,954,000 



The advances pursuant to the Municipal Development and Loan Act, 1963, c. 13, 
were made to provide financial assistance to augment or accelerate municipal capital 
works programs. Section 11 of the Act provides for the forgiveness of 25% of the principal 
amount of a loan where the municipal project in respect of which the loan was extended 
is completed to the satisfaction of the Municipal Development and Loan Board on or 
before the 31st day of March 1966. At March 31, 1965 advances with respect to projects 
not completed amounted to $7,349,000 and accordingly a reserve of 25% or $1,837,000 
was established to cover the portion of the advances to be forgiven. 

152. Securities held in trust. The amount of $53,060,000 shown under this heading 
represents securities held for the following accounts: guarantee deposits in respect of oil 






AUDITOR GENERAL'S REPORT 103 

and gas permits, $27,011,000; Municipal Development and Loan Board, $9,474,000; 
guarantee deposits in respect of customs duties and excise taxes, $5,153,000; pilots' pension 
funds, $4,644,000; contractors' securities, $4,406,000; and other, $2,372,000. 

153. Deferred charges. The balances included under this heading at March 31, 1965 
with the comparable balances at the close of the two previous years were : 

March 31, 1963 March 31, 1964 March 31, 1965 

Unamortized portion of actuarial defi- 
ciencies — 

Canadian Forces Superannuation 

Account $ 524,849,000 $ — $ 53,762,000 

Public Service Superannuation Account 276,661,000 276,661,000 39,921,000 

Royal Canadian Mounted Police 

Superannuation Account 3 , 533 , 000 — 4 , 153 , 000 

805,043,000 276,661,000 97,836,000 

Unamortized loan flotation costs 131 , 601 , 000 123 , 700 , 000 1 10 , 749 , 000 

$ 936,644,000 $ 400,361,000 $ 208,585,000 



The amounts appearing under the heading "Unamortized portion of actuarial defi- 
ciencies" represent the balances of amounts credited to the superannuation accounts to 
cover actuarial deficiencies in those accounts with offsetting charges in the "Deferred 
charges" accounts. The deficiency of $276,661,000 at March 31, 1964 in respect of the 
Public Service Superannuation Account was written off to net debt during 1964-65. The 
balances at March 31, 1965 represent the portions of actuarial deficiencies remaining after 
one-fifth of the deficiencies arising from pay increases authorized in 1963-64 and 1964-65 
had been charged to expenditure in 1964-65 (see paragraph 173). 

The item "Unamortized loan flotation costs" records the unamortized portion of dis- 
counts and commissions paid on the issuance of loans. The following is a summary of the 
transactions for the year: 

Balance, April 1, 1964 $ 123,700,000 

Add: 

Discount and commissions on new loans 37 , 027 , 000 

Adjustments 223,000 

160,950,000 
Deduct: 

Amortization charges included in 1964-65 expenditure 50,201 ,000 

Balance, March 31, 1965 $ 110,749,000 



154. Suspense accounts. The balance of $141,000 at March 31, 1964, representing the 
total of individual balances that remained unadjusted in the process of reconciling pay- 
ments to chartered banks for the redemption of paid cheques with the amount of those 
cheques, was written off to net debt during the year under authority of Department of 
Finance Vote 27d, Appropriation Act No. 2, 1965. 



104 AUDITOR GENERAL'S REPORT 

155. Inactive loans and investments. The $94,824,000 shown for this item in the State- 
ment at March 31, 1965, unchanged from the two previous years, comprised the following 
balances : 

Loan to China in 1946, under the Export Credits Insurance Act $ 49,426,000 

Loans to Roumania in 1919 for the purchase of goods produced in Canada 24,329,000 

Loans to Greece in 1919 for the purchase of goods produced in Canada 6,525,000 

Balance arising out of implementation of guarantee, given under the Export 
Credits Insurance Act, of loans by chartered banks to Ming Sung Industrial 
Company Limited (carrying prior guarantee by the Government of China). . 14,470,000 
Loan to Province of Saskatchewan in 1908 for the purchase of seed grain — last 

payment received in 1959-60 74,000 

$ 94,824,000 



Liabilities 

156. The following table lists the liabilities at March 31, 1965 by main headings in 
the Statement of Assets and Liabilities in comparison with the corresponding balances at 
the close of the two previous years : 

March 31, 1963 March 31, 1964 March 31, 1965 



Current and demand liabilities $ 1,631,338,000 $ 1,619,692,000 $ 1,432,616,000 

Deposit and trust accounts 225,203,000 196,454,000 272,312,000 

Annuity, insurance and pension 

accounts 4,747,017,000 5,131,054,000 5,675,841,000 

Undisbursed balances of appropria- 
tions to special accounts 119,952,000 111,601,000 95,703,000 

Deferred credits 107,739,000 119,447,000 113,208,000 

Suspense accounts 6,055,000 5,118,000 5,532,000 

Unmatured debt 17,961,836,000 18,740,097,000 18,978,214,000 



$ 24,799,140,000 $ 25,923,463,000 $ 26,573,426,000 



157. Current and demand liabilities. The balances comprising this item in the Statement 
at March 31, 1965, in comparison with the corresponding balances at the close of the two 
previous years, were: 

March 31, 1963 March 31, 1964 March 31, 1965 



Non-interest bearing notes payable to 
the International Monetary Fund and 
the International Development Asso- 
ciation $ 757,284,000 $ 586,996,000 $ 367,898,000 

Accounts payable 267,364,000 342,673,000 363,925,000 

Outstanding treasury cheques 266 , 409 , 000 319 , 625 , 000 315, 077 , 000 

Interest accrued 196,974,000 215,973,000 231,173,000 

Interest due 79,461,000 91,894,000 102,034,000 

Matureddebt 32,467,000 26,820,000 19,141,000 

Other balances 31,379,000 35,711,000 33,368,000 



$ 1,631,338,000 $ 1,619,692,000 $ 1,432,616,000 



AUDITOR GENERAL'S REPORT 



105 



Non-interest bearing notes payable to the International Monetary Fund ($345 million) 
and the International Development Association ($22.9 million) are those portions of 
Canada's quotas of the capital of these international agencies which are not covered by 
cash or gold. 

The amounts shown for "Accounts payable" are the totals of cheques issued in April 
in each year in payment of charges pertaining to the previous year. 

158. Deposit and trust accounts. The following is a listing of the balances included in 
this item at March 31, 1965 in comparison with the corresponding balances at the close 
of the two previous years : 

March 31, 1963 March 31, 1964 March 31, 1965 



Provincial tax collection agreements .... $ — ■ 

Guarantee deposits 12,505,000 

Indian trust funds 28,877,000 

Deposits by Crown corporations 30,004,000 

Post Office Savings Bank 25,880,000 

Canadian Pension Commission (Admin- 
istration trust fund) 13 ,024 ,000 

National Harbours Board 7 , 855 , 000 

Instalment purchase of bonds by public 

service employees 12 , 297 , 000 

Security deposits — Municipal Develop- 
ment and Loan Board — 

Contractors' holdbacks 17 , 724 , 000 

Contractors' security deposits 13 ,025 ,000 

Army Benevolent Fund 6,013,000 

Other balances 57,999,000 



27,375,000 
29,167,000 
13,650,000 
24,605,000 

13,490,000 
13,320,000 

12,535,000 



8,604,000 

7,961,000 

5,779,000 

39,968,000 



$ 225,203,000 $ 196,454,000 



$ 48,797,000 
34,742,000 
31,109,000 
26,783,000 
23,255,000 

14,489,000 
13,560,000 

13,257,000 

9,474,000 
8,802,000 
6,028,000 
5,560,000 
36,456,000 

$ 272,312,000 



The federal Government collects provincial income taxes from corporations and persons 
on behalf of all provinces except Quebec. At March 31, 1965 collections had exceeded 
remittances by $48,797,000. In the two preceding years remittances had exceeded collec- 
tions by $10,435,000 in 1964 and $13,091,000 in 1963 and these amounts were included 
in "Loans to provincial governments" in those years. 

The increase of $7.4 million in the balance for "Guarantee deposits" was largely due 
to amounts deposited with the Department of Northern Affairs and National Resources 
as guarantees for oil, mineral and timber rights and licences. 

The increase of $13 million in "Deposits by Crown corporations" is attributable to 
deposits of $10 million by Export Credits Insurance Corporation and $5 million by Atomic 
Energy of Canada Limited, offset by a withdrawal of $2 million by Eldorado Mining and 
Refining Limited. 

The balance in the "Post Office Savings Bank", $23,255,000, is the amount on deposit 
in 299,739 depositors' accounts — a reduction of $1,350,000 and 1,285 accounts during the 
year. Interest is paid on deposits at a rate of 2|% per annum. 



106 AUDITOR GENERAL'S REPORT 

The $36,456,000 shown for "Other balances" at March 31, 1965 represents the total 
of 85 balances, including: Veterans' trust funds, $7,201,000; deferred pay of Armed Forces 
personnel, $3,435,000; prepayments to Royal Canadian Mint, $3,116,000; Northwest 
Territories revenue account, $2,683,000; common school funds, $2,678,000; Emergency 
Gold Mining Assistance holdbacks, $2,318,000; National Research Council special fund, 
$2,314,000; deposits made by the United States of America to cover expenditures to be 
made on its behalf, $1,633,000; and the immigration guarantee fund, $1,310,000. 

159. Annuity, insurance and pension accounts. The balances making up this item at 
March 31, 1965, in comparison with the corresponding balances at the close of the two 
previous years, are given in the following table : 

March 31, 1963 March 31, 1964 March 31, 1965 

Public Service Superannuation Account . $ 1 , 724 , 1 16 , 000 $ 1 , 856 , 408 , 000 $ 2 , 161 , 828 , 000 

Canadian Forces Superannuation Account 1,605,797,000 1,821,525,000 2,028,123,000 

Government Annuities Account 1 , 264 , 436 , 000 1 , 284 , 262 , 000 1 , 303 , 137 , 000 

Royal Canadian Mounted Police Super- 
annuation Account 37,284,000 45,987,000 57,707,000 

Other balances 115,384,000 122,872,000 125,046,000 

$ 4,747,017,000 $ 5,131,054,000 $ 5,675,841,000 



The transactions during the year ended March 31, 1965 in each of the accounts listed 
above are summarized as follows : 

Public Service Superannuation Account 

Balance, April 1, 1964 $ 1,856,408,000 

Add: 

Actuarial adjustment — Contra — "deferred charges" 

account $ 169,457,000 

Interest credits 78,716,000 

Contributions by participants 61 ,817,000 

Contributions by government 58,995,000 

Other credits 596,000 

369,581,000 



2,225,989,000 



Deduct: 

Annuity payments 52,587,000 

Withdrawal of contributions 10,829,000 

Other charges 745,000 



64,161,000 

Balance, March 31, 1965 $ 2, 161,828,000 






AUDITOR GENERAL'S REPORT 107 

Canadian Forces Superannuation Account 

Balance, April 1, 1964 $ 1,821,525,000 

Add: 

Interest credits $ 74,982,000 

Actuarial adjustment — Contra — "deferred charges" 

account 67,202,000 

Contributions by government 58,774,000 

Contributions by participants 35, 176,000 

Other credits 256,000 

236,390,000 

2,057,915,000 
Deduct: 

Annuity payments 18 , 620 , 000 

Gratuities and withdrawal allowances 11 ,008,000 

Other charges 164,000 

29,792,000 

Balance, March 31, 1965 $ 2,028,123,000 

Government Annuities Account 

Balance, April 1, 1964 $ 1,284,262,000 

Add: 

Interest credits $ 49,180,000 

Premiums received 30 , 162 , 000 

Sundry adjustments 10 ,000 

79,352,000 



1,363,614,000 
Deduct: 

Vested annuity and commuted value payments and refunds. 59 , 782 , 000 
Transfer to revenue of the excess over actuarial value of 

outstanding contracts 695,000 

60,477,000 

Balance, March 31, 1965 $ 1,303,137,000 



Royal Canadian Mounted Police Superannuation Account 

Balance, April 1, 1964 $ 45,987,000 

Add: 

Actuarial adjustment — Contra — -"deferred charges" account $ 5 , 192 , 000 

Contributions by government 3 , 147 ,000 

Contributions by participants 2, 101 ,000 

Interest credits 1 ,930 ,000 

Contributions by Newfoundland 17,000 

12,387,000 



58,374,000 
Deduct: 

Annuities and allowances payments 420,000 

Termination payments 243 ,000 

Other charges 4 , 000 

667,000 



Balance, March 31, 1965 $ 57,707,000 



108 AUDITOR GENERAL'S REPORT 

The following is a listing of the major items included in "Other balances" with the 
balances for the previous two years shown for comparative purposes : 



Veterans' Insurance Fund 

Civil Service Insurance Fund 

Canadian Regular Forces Death Benefit 

Account 

Unemployment Insurance Fund 

Returned Soldiers' Insurance Fund 

Public Service Death Benefit Account . . 
Royal Canadian Mounted Police De 

pendents' Pension Fund 

Public Service Retirement Fund 

Pilots' Pension Funds 

Members of Parliament Retiring Allow 

ances Account 

Sundry 



The transactions during the year ended March 31, 1965 in the Members of Parliament 
Retiring Allowances Account are summarized as follows : 

Balance, April 1, 1964 $ 1,671,000 

Add: 

Contributions by participants $ 235,000 

Contributions by government 234,000 

Interest credits 72,000 

541,000 

2,212,000 
Deduct: 

Annual allowances 288,000 

Withdrawal allowances 4,000 

292,000 

Balance, March 31, 1965 $ 1,920,000 



March 31, 1963 


March 31, 1964 


March 31, 1965 


$ 26,187,000 
24,030,000 


$ 


27,601,000 
24,239,000 


$ 


29,027,000 
24,289,000 


11,464,000 

14,636,000 

13,850,000 

7,467,000 




13,240,000 

16,796,000 

13,295,000 

8,612,000 




15,010,000 

14,282,000 

12,707,000 

9,876,000 


6,477,000 
5,879,000 
3,880,000 




6,916,000 
6,007,000 
4,247,000 




7,369,000 
5,576,000 
4,699,000 


1,295,000 
219,000 




1,671,000 
248,000 




1,920,000 
291,000 


$ 115,384,000 


$ 


122,872,000 


$ 


125,046,000 



160. Undisbursed balances of appropriations to special accounts. The following is a listing 
of the balances included in this item in the Statement of Assets and Liabilities, compared 
with the corresponding balances at the close of the two previous years : 

March 31, 1963 March 31, 1964 March 31, 1965 

Colombo Plan Fund $ 85,325,000 $ 84,451,000 $ — 

International Development Assistance 

Fund — — 82,245,000 

Rail way Grade Crossing Fund 26 , 703 , 000 1 7 , 649 , 000 6 , 865 , 000 

Centennial of Confederation Fund 1 , 000 , 000 3 , 000 , 000 6 , 024 , 000 

National Capital Fund 6,776,000 6,426,000 426,000 

Other balances 148,000 75,000 143,000 

$ 119,952,000 $ 111,601,000 $ 95,703,000 



AUDITOR GENERAL'S REPORT 109 

During the year the Colombo Plan Fund was charged with expenditures amounting 
to $32,761,000. The unexpended balance of $51,690,000 on March 31, 1965 was transferred 
to a special account to be known as the "International Development Assistance Fund" 
established under authority of a dollar vote of the Department of External Affairs, Vote 
33d, Appropriation Act No. 2, 1965. Under the same authority, the special account was 
credited with the unexpended balance of $30,555,000 in the sub-vote for International 
Development Assistance within Department of External Affairs Vote 35 of the Main 
Estimates, 1964-65. 

Amounts of $5,000,000, provided under section 265 of the Railway Act, R.S., c. 234, 
and $100,000, provided under Department of Transport Vote 82, were credited to the 
account for the Railway Grade Crossing Fund during 1964-65. Expenditures totalling 
$15,884,000 were incurred in aiding in the cost of installing protective devices at railway 
grade crossings, grade separations and reflective markings on the sides of railway cars. 

During 1964-65 an amount of $4,000,000 provided by Privy Council Votes 30 and 30a, 
was credited to the Centennial of Confederation Fund. Expenditures of $976,000 were 
charged to the account. 

During the year an amount of $4,500,000 provided by Department of Public Works 
Vote 65 was credited to the account for the National Capital Fund, and the account was 
charged with payments totalling $10,500,000 to the National Capital Commission to 
finance the cost of capital projects approved by the Governor in Council. 

161. Deferred credits. The following is an analysis of this item at the close of the 
1964-65 fiscal year and the two previous years : 



Deferred interest on loans made under 
the United Kingdom Financial Agree- 
ment Act, 1946 

Deferred interest on loans to The St. 
Lawrence Seaway Authority 

Equity in agency account of Crown 
Assets Disposal Corporation 

Credits arising from the recording of 
agreements of sale of Crown assets 

Other balances 



The increase in the item "Deferred interest on loans made under the United Kingdom 
Financial Agreement Act, 1946" resulted from the Government of the United Kingdom 
exercising its option, for the first time since 1957, to defer the annual instalment of principal 
and interest on the loans. 

During the year The St. Lawrence Seaway Authority paid $43,062,000 on account of 
interest previously deferred, while payment of interest for the year 1964, amounting to 
$18,025,000, was in turn deferred. This deferred interest is payable by the Authority over 
a 43-year period commencing in 1967, along with repayments of principal. 



March 31, 1963 


March 31, 1964 


March 31, 1965 


$ 44,174,000 


$ 


44,174,000 


$ 63,761,000 


49,388,000 




63,761,000 


38,724,000 


5,884,000 




5,173,000 


5,522,000 


6,743,000 




4,702,000 


2,991,000 


1,550,000 




1,637,000 


2,210,000 


$ 107,739,000 


$ 


119,447,000 


$ 113,208,000 



110 AUDITOR GENERAL'S REPORT 

162. Suspense accounts. There was no appreciable change in this item on the liabilities 
side of the Statement during the year ended March 31, 1965. The year-end figure of 
$5,532,000 included balances of $1,257,000 for the Unclaimed Cheques Account, $617,000 
for the Hospital Insurance Outside Canada Account and $566,000 for the National Defence 
Replacement of Materiel Account. In 1964-65, the proceeds of sales of materiel to other 
countries, totalling $61,000, were credited to the Replacement of Materiel Account pursuant 
to section 11 of the National Defence Act, while $506,000 for procurement of replacement 
materiel was charged to the Account. 

163. Unmatured debt. A summary of the unmatured debt outstanding at March 31, 
1965, in comparison with balances outstanding at the close of the two previous years, is 
as follows : 

March 31, 1963 March 31, 1964 March 31, 1965 

Bonds 

Payable in Canada $ 15,385,847,000 $ 16,133,692,000 $ 16,461,809,000 

Payable in London 34,584,000 — — 

Payable in New York 376,405,000 376,405,000 376,405,000 

15,796,836,000 16,510,097,000 16,838,214,000 

Treasury bills (not exceeding 180 

days) 2,165,000,000 2,230,000,000 2,140,000,000 

$ 17,961,836,000 $ 18,740,097,000 $ 18,978,214,000 



The increase of $328,117,000 in the bond debt payable in Canada is the amount by 
which new borrowings of $3,279 million during the year exceeded redemptions of $2,951 
million of prior issues. Canada savings bonds accounted for $1,011 million of the new 
borrowings and $551 million of the redemptions. 

Issues payable in New York were valued at the official parity rate of $1 U.S. = 
$1.08108 Canadian. 

It has always been the practice to include treasury bills and bonds maturing within 
the ensuing fiscal year in the amount shown for "Unmatured debt" along with issues 
maturing at later dates. In addition to treasury bills of $2,140 million shown in the above 
summary as maturing within 180 days, the following issues, all payable in Canada, fall 
due within the current fiscal year : 

Canada Savings Bonds 1953, due November 1, 1965 $ 45, 266,000 

Loan of 1958-65, due September 1, 1965 449,891 ,000 

Loan of 1962-65, due April 1, 1965 110,000,000 

Loan of 1963-65, due April 1, 1965 90,000,000 

Loan of 1963-66, due February 1, 1966 225,000,000 

Loan of 1964-65, due July 1, 1965 400,000,000 

Loan of 1964-65, due December 1, 1965 325,000,000 

Loan of 1964-66, due February 1, 1966 105,000,000 

$ 1,750,157,000 



AUDITOR GENERAL'S REPORT 111 

Net Debt 

164. With the Liabilities amounting to $26,573,426,000 (paragraph 156) and the 
Assets to $11,068,953,000 (paragraph 144), the net debt at March 31, 1965 was 
$15,504,473,000. The following is an analysis of the Net Debt Account for the year: 

Balance, April 1, 1964 $ 15,070,149,000 

Add — Deficit for the year 

Expenditure $ 7,218,275,000 

Revenue 7,180,310,000 

37,965,000 

Write-off of unamortized portion of the actuarial 
deficiency in the Public Service Superannuation 
Account 396,217,000 

Write-off of Cheque Adjustment Suspense Account. 142,000 

Balance, March 31, 1965 $ 15,504,473,000 



Contingent Liabilities 

165. A note on the Liabilities side of the Statement of Assets and Liabilities gives 
the totals of the several classes of contingent liabilities outstanding at the year-end and 
refers to page 7.83 of the Public Accounts (Volume I) where details are to be found. 

The following is a summary of the main contingent liabilities with determinate 
amounts outstanding at March 31, 1965 in comparison with the corresponding amounts 
at the close of the two previous years : 

March 31, 1963 March 31, 1964 March 31, 1965 

Insured loans made by approved lenders 

under the National Housing Act, 1954.$ 4,123,000,000 $ 4,499,000,000 $ 4,949,864,000 

Railway securities guaranteed as to prin- 
cipal and interest 1,381,361,000 1,377,611,000 1,368,298,000 

Deposits maintained by chartered banks 

in Bank of Canada 741,870,000 840,037,000 897,218,000 

Guarantees under Export Credits Insur- 
ance Act, Part I 333,646,000 378,096,000 468,644,000 

Loans made by chartered banks to Cana- 
dian Wheat Board 80,331,000 151,313,000 169,770,000 

Other contingent liabilities of determin- 
ate amounts 73,998,000 82,217,000 112,248,000 

$ 6,734,206,000 $ 7,328,274,000 $ 7,966,042,000 

Among the contingent liabilities of indeterminate amount is that in respect of loans 
made by approved lending institutions under National Housing Acts prior to the 1954 Act. 



112 AUDITOR GENERAL'S REPORT 

Comments on Assets and Liabilities 

166. Section 64 of the Financial Administration Act requires that there be included in 
the Public Accounts "a statement, certified by the Auditor General, of such of the assets 
and liabilities of Canada as in the opinion of the Minister [of Finance] are required to show 
the financial position of Canada as at the termination of the fiscal year". 

167. The Statement of Assets and Liabilities as at March 31, 1965 was prepared by 
the Department of Finance on the same basis as in previous years, the following explanation 
concerning this basis being included in the introduction to the Public Accounts: 

With certain exceptions, taxes and revenues receivable, revenue and other asset 
accruals and inventories of materials, supplies and equipment are not recorded as assets 
(except when these are held as charges against working capital accounts or revolving funds) 
nor are public works and buildings or other fixed or capital assets. Following the principle 
that only realizable or interest- or revenue-producing assets should be offset against the gross 
liabilities, costs of capital works are charged to expenditures at the time of acquisition or 
construction. Consequently, government buildings, public works, national monuments, 
military assets (such as aircraft, naval vessels, and army equipment) and other capital 
works and equipment are recorded on the statement of assets and liabilities at a nominal 
value of $1 as the value is not considered as a proper offset to the gross liabilities in de- 
termining the net debt of Canada. 

On the liabilities side, accrued liabilities (except for interest accrued on the public debt) 
are not taken into account in determining the obligations of the government. However, 
under section 35 of the Financial Administration Act, liabilities under contracts and other 
accounts payable at March 31 if paid on or before April 30 may be charged to the accounts 
for the year. These are recorded as accounts payable in the "Current and demand liabilities" 
schedule to the statement of assets and liabilities. 

This explanation reflects a policy established by the Minister of Finance in 1920, that 
assets to be included in the Statement of Assets and Liabilities should be confined to those 
which are readily convertible or which are revenue-producing. The Minister had immediate- 
ly implemented this policy by removing from the Statement of Assets and Liabilities a 
substantial amount in loans, etc., which could not meet this test. 

This policy has been followed by successive Ministers of Finance ever since but a 
major exception was introduced in 1957-58 when funds required by the National Capital 
Commission for the purchase of lands in the Greenbelt were recorded as loans to the 
Commission instead of budgetary expenditures as had formerly been the case. They were 
given the appearance of being revenue-producing by asking Parliament to appropriate 
money to the National Capital Commission with which to pay interest on the loans. 
This practice has been the subject of comments in previous Reports and has been con- 
sidered by the Public Accounts Committee which holds the view that outlays on properties 
in the Greenbelt are expenditures of the Crown rather than income-producing investments. 
The Committee has on two occasions requested the Department of Finance to review the 
existing practice with the National Capital Commission with a view to placing the financing 
of the Commission on a more realistic basis. This is one of the observations of the Standing 
Committee on Public Accounts which has not yet been dealt with by Executive action 
(see Appendix 1, item 27). 



AUDITOR GENERAL'S REPORT 113 

As is pointed out in paragraph 55 of this Report, the funds required by the Canadian 
Broadcasting Corporation to meet its capital expenditures during the year ended March 31, 
1965 were provided by means of loans from the Government instead of grants as in the past. 

The explanation quoted above means that the costs of government buildings and other 
public works undertaken by government departments are charged to expenditure at the 
time of acquisition or construction because the departments are dependent on public 
revenues for their capital needs. The two Crown corporations referred to above are also 
dependent on public revenues for their capital needs. 

168. Accounts receivable. Taxes and sundry accounts receivable are not recorded as 
assets in the Statement of Assets and Liabilities. 

Information regarding the total accounts receivable of each department at the year- 
end, in comparison with the corresponding total at the close of the preceding year, is given 
in the several departmental sections of Volume II of the Public Accounts. 

The Public Accounts Committee in its Sixth Report 1964 expressed agreement with 
our observation that it would be more informative to Parliament were a summary showing 
the overall total of all accounts receivable due to the Government of Canada, whether in 
memorandum form or recorded on the books, included in the Public Accounts each year. 
As a result, a summary similar to the following is included for the first time in Volume I 
of the Public Accounts for 1964-65 : 

Previous Years 
Department Current year Collectable Uncollectable Total 

Agriculture $ 440,218 $ 849,636 $ 21,258 $ 1,311,112 

Citizenship and Immigration 196 , 564 442 , 968 57 , 733 697 , 265 

Defence Production 4 , 270 1 , 768 259 , 329 265 , 367 

External Affairs 333,210 482,231 14,700 830,141 

Finance 21,198 7,816 59,922 88,936 

Justice 134, 194 222 134,416 

Labour 120 17,465 17,585 

Unemployment Insurance 

Commission 54,798 127 469 55,394 

Fund 4,873,774* — 4,873,774 

Mines and Technical Surveys 61 , 222 15 , 048 595 76 , 865 

National Defence 4,514,477 2,502,328 88,650 7,105,455 

National Health and Welfare 1,328,976 281,547 72,710 1,683,233 

National Research Council 108,535 12,201 561 121,297 

National Revenue — 

Customs and Excise Division .... 13 , 338 , 855* 1 , 241 , 672* 14 , 580 , 527 

Taxation Division 175,121,388* 45,137,672* 220,259,060 

Northern Affairs and National 

Resources 187,342 412,228 4,075 603,645 

Public Printing and Stationery 129 , 766 2 , 035 131 , 801 

Public Works 627,415 484,939 10,959 1,123,313 

Royal Canadian Mounted Police.. . 385,548 5,913 2,003 393,464 

Trade and Commerce 134,013 9,069 11,566 154,648 

Transport 3,169,176 600,885 802 3,770,863 

Veterans Affairs 3,784,409 2,038,803 369,096 6,192,308 

Other departments 29,950 11,157 9,103 50,216 

$208,979,424 $8,160,699 $47,380,562 $264,520,685 

* These amounts relate to both current and previous years. 



114 



AUDITOR GENERAL'S REPORT 



The accounts receivable totals shown in the above table were the amounts remaining 
after certain uncollectable debts 

(a) of SI, 000 or less had been deleted from the accounts during the year under authority of 
section 23 of the Financial Administration Act, and 

(b) in excess of $1,000 had been written off under authority of Department of Finance 
Vote 22d of Appropriation Act No. 2, 1965. 

A summary of these deletions by departments is as follows: 



Department 



Items 



Agriculture 440 

Citizenship and Immigration 1 , 128 

Mines and Technical Surveys 35 

National Defence. 460 

National Health and Welfare 307 

National Revenue — 

Customs and Excise Division 156 

Taxation Division 957 

Northern Affairs and National 

Resources 47 

Public Works 98 

Royal Canadian Mounted Police 38 

Veterans Affairs 879 

Other departments 145 

4,690 



Deleted 






under authority of 




Financial 






Administra- 


Finance 




tion Act, 


Vote 


Total 


sec. 23 


22d 


deleted 


$ 5,125 


$ 14,791 


$ 19,916 


172,972 


88,174 


261,146 


189 


148,759 


148,948 


8,123 


175,568 


183,691 


82,473 


29,193 


111,666 


2,997 


— 


2,997 


299,827 


12,070 


311,897 


7,934 


— 


7,934 


13,133 


— 


13,133 


8,599 


— 


8,599 


87,983 


175,430 


263,413 


2,998 


— 


2,998 


$ 692,353 


$ 643,985 


$ 1,336,338 



We have drawn attention in the past several years to the fact that whether accounts 
receivable are kept in memorandum form or recorded as an asset in the Statement of Assets 
and Liabilities, they are nonetheless debts due to the Crown, and their accurate recording 
and ultimate collection are primarily responsibilities of the departments concerned. While 
we have again found that most departments having extensive accounts receivable keep 
their records accurately and efficiently, this does not apply in the case of some departments 
where accounts receivable as such are not an important factor. We believe this situation 
to be largely due to the failure of these departments to maintain controlling accounts and 
to provide for an effective internal verification of the accounts by officers other than 
those responsible for keeping the accounts. Such weaknesses in internal control should be 
remedied in order to reduce the possibility of accounts being tampered with and collec- 
tions misappropriated. 

The Public Accounts Committee expressed concern over this situation and in its Sixth 
Report 1964 (see Appendix 1, item 28) suggested that the Treasury Board have the matter 
studied with a view to ensuring that amounts due to the Crown are adequately recorded 
and that an accounts receivable control system is instituted. The Committee also stated 
that collection procedures must be tightened up and firmly enforced. 






AUDITOR GENERAL'S REPORT 115 

The Treasury Board is presently developing a policy on revenue control designed to 
eliminate the conditions referred to by the Auditor General and the Public Accounts 
Committee and also by the Royal Commission on Government Organization. 

169. Accounts receivable — Department of National Revenue. It will be noted from the 
table in paragraph 168 that the accounts due to the Department of National Revenue at 
the close of the year accounted for $235 million of the overall total of $265 million owing 
to the Crown. 

With the co-operation of the officials of the Customs and Excise Division and the 
Taxation Division of the Department of National Revenue, analyses have been prepared 
showing the nature and amounts of the unpaid accounts. 

customs and excise division. — The following is a summary of the accounts receivable 
of this Division at March 31, 1965 compared with the preceding year: 

Year ended March 31 



Collectable — 

Excise tax 

Customs seizures 

Duties and taxes on importations 1 , 227 , 000 

Investigations 

Salary overpayments 



Uncollectable — 

Excise tax 

Customs seizures 

Duties and taxes on importations . 

Investigations , 

Salary overpayments 

Sundry 



1965 




1964 


$ 11,381,000 


$ 9 


,266,000 


531,000 




197,000 


1,227,000 




134,000 


197,000 




22,000 


2,000 




1,000 


13,338,000 


9 


,620,000 


1,022,000 




591,000 


47,000 




29,000 


166,000 




165,000 


3,000 




— 


— 




2,000 


4,000 




4,000 


1,242,000 




791,000 


$ 14,580,000 


$ 10 


,411,000 



In our 1964 Report we stated that the figures for that year did not include (a) certain 
sales tax assessments, (b) customs amending entries unpaid for less than six months, and 
(c) inactive accounts of the Investigations Branch. At March 31, 1965 these amounts 
have been included and account in large measure for the increase of $4.2 million shown in 
the above statement. 

The Customs and Excise Division is preparing to extend the system of accounts 
receivable control accounts to include all amounts receivable by the Department. As yet 
it is not possible to report upon the age of the accounts as the records are maintained at 
the district level and the information has not been provided to head office. We understand 
that this information will be available at head office next year. 

During the year 156 items amounting to $2,997 were written off with Executive 
approval under authority of section 23 of the Financial Administration Act. 



116 AUDITOR GENERAL'S REPORT 

taxation division.— At March 31, 1965 the following amounts were recorded as 
accounts receivable: 

No. of 
Classification accounts Amount 



Income tax — 

Individuals 

Corporations 

Tax deductions and non-residents. 
Deferred tax 

Provincial income tax 

Estate tax and succession duty 

Sundry salary overpayments 



Only $43 million, or 20% of the total of $220 million shown above, consists of current 
collectable accounts. The remainder, $177 million (114,196 accounts), had not been 
collected for the following reasons: 

March 31 February 29 

1965 1964 



127,615 


$ 121,659,000 


5,551 


66,907,000 


14,241 


11,065,000 


— 


6,238,000 




205,869,000 


— 


42,000 


931 


14,345,000 


— 


3,000 




$ 220,259,000 



1. Under appeal $ 75,102,000 $ 67,778,000 

There were 943 accounts under appeal at 
March 31, 1965, of which 310 were secured 
and 51 partially secured for the reason that 
no collection arrangements were possible. 
Section 51 of the Income Tax Act provides 
that "the taxpayer shall, within 30 days from 
the day of mailing of the notice of assessment, 
pay to the Receiver General of Canada any 
part of the assessed tax, interest and penalties 
then remaining unpaid, whether or not an 
objection to or appeal from the assessment is 
outstanding". 

2. Uncollectable 45,095,000 25,321,000 

There were 19,801 uncollectable accounts 
at March 31, 1965. The increase of approxi- 
mately $20 million in uncollectable accounts, 
many of them in amounts over $1,000, in the 
fiscal year 1964-65, results from a detailed 
systematic review of all accounts considered 
but not classified as uncollectable. Uncol- 
lectable amounts in excess of $1,000 may be 
written off only with the sanction of Parlia- 
ment and no such approval for tax accounts 
has been sought by the Division since 1961-62. 
However, two items representing salary over- 
payments and amounting to $12,070 were 









AUDITOR GENERAL'S REPORT 117 

March 31 February 29 

1965 1964 



deleted under parliamentary authority by 
Department of Finance Vote 22d. Amounts 
of $1,000 or less may be written off with 
Executive approval and 955 accounts amount- 
ing to $299,827 were written off during the 
year. 

3. Current assessments 30,719,000 21,475,000 

Accounts that were under 90 days old at March 
31, 1965 number 76,384 and represent recent 
assessments and re-assessments, the bulk of 
which are not due until April 30, 1965. 

4. Duplicate assessments (estimated) 5,000,000 8,000,000 

When deemed necessary, duplicate assessments 
are raised against individuals or corporations 
with which the originally assessed taxpayer 
may be associated or to which he might 
transfer assets. 

5. Temporarily uncollectable 14,951 ,000 — 

There are 17,068 accounts in this category and 
they represent taxpayers who are unemployed, 
in jail, non-residents expected to return to 
Canada, operators of seasonal businesses and 
their employees, self-employed, receiving 
foreign income who at present are immune to 
our collection process, or who are unable to 
pay now but whose financial circumstances 
are likely to improve. 

6. Deferred tax 6,238,000 6,586,000 

Deferred tax is collectable only on the death of 
a taxpayer, in accordance with section 13 of 
the Income War Tax Act, 1943-44, c. 14. This 
section gave the taxpayer the option of paying 
part of the 1942 tax in 1943 or thereafter at a 
discount or having his executors pay it from 
his estate. 

7. Provincial income tax 42,000 42,000 

This amount, which is now regarded as un- 
collectable, represents the balance of 1939-40 
provincial income tax arrears for Quebec and 
Ontario transferred to the Federal Govern- 
ment for collection under authority of the 
Dominion-Provincial Taxation Agreement Act 
1942, c. 13. 



$ 177,147,000 $ 129,202,000 



118 AUDITOR GENERAL'S REPORT 

In our opinion analyses or details of this nature relating to the larger groupings of 
debts due to the Crown, should be prepared by the departments responsible and made 
available to Parliament each year, through the medium of the Public Accounts or in the 
departmental annual reports. 

170. Cash on deposit in chartered banks. Included in the item "Current assets" is an 
amount of $682 million on deposit in bank accounts. Of this amount $634 million was on 
deposit in the chartered banks of Canada, $31 million in the Bank of Canada and $17 
million in banks in London, New York, Paris and Bonn. 

The balances on deposit in foreign bank accounts are working balances against which 
cheques are drawn and which do not earn interest. The Bank of Canada, in accordance 
with the provisions of section 19(e) of the Bank of Canada Act, R.S., c. 13, does not pay 
interest on deposits. However, profits of the Bank of Canada are paid to the Receiver 
General and placed to the credit of the Consolidated Revenue Fund. 

Balances on deposit in the chartered banks in Canada in excess of an aggregate of 
$100 million earn interest at the weekly average accepted treasury bill tender rate for the 
three months treasury bills, less 10%, calculations being based on the minimum weekly 
balances. No interest was received on the aggregate of $100 million which was kept on 
deposit in the chartered banks throughout the year 1964-65. (See also paragraph 62.) 

171. Agricultural Commodities Stabilization Account. The operations of the Agri- 
cultural Stabilization Board during the year 1964-65 resulted in a loss of $61,500,000. 
This loss, together with a balance of loss of $2,555,000 brought forward from the previous 
year, was met to the extent of $57,118,000 by funds provided by Department of Agri- 
culture Vote 80d, Appropriation Act No. 2, 1965, and to the extent of $5,619,000 by major 
services provided without charge by government departments (see paragraph 213). The 
balance of the loss amounting to $1,318,000 remains as a charge to the Agricultural 
Commodities Stabilization Account and is included in the balance of $23,152,000 at 
March 31, 1965. This amount appears as a current asset item (see paragraph 145) although 
to the extent of $1,318,000 it represents a loss which must eventually be written off to 
expenditure (see also paragraph 140). 

172. Sinking fund and other investments held for retirement of unmatured debt. On August 
10, 1964 the Minister of Finance purchased $4.1 million of 2f% Canada bonds payable 
in New York and due September 1, 1974 and $1.8 million of a similar issue due on September 
15, 1975. Interest earned on these bonds amounting to $101,000 was credited to this asset 
account in error instead of being credited to revenue. Furthermore, an amortization 
adjustment of $57,000 representing the portion of the discount on these bonds applicable 
to the year was not made. Consequently, this asset item is under-valued by $158,000 and 
the Department of Finance revenue item "Return on Investments" is understated by a 
similar amount. 

173. Deferred charges — Unamortized portions oj actuarial deficiencies. The balances in 
these accounts represent the remaining portions of the actuarial deficiencies in the 
Canadian Forces Superannuation Account $53,762,000, the Public Service Superannuation 



AUDITOR GENERAL'S REPORT 119 

Account $39,921,000, and the Royal Canadian Mounted Police Superannuation Account 
$4,153,000, after one-fifth of the deficiencies which arose when general pay increases were 
authorized had been charged to expenditure in 1964-65 (see paragraph 63). 

174. Suspense accounts. Reference was made under the heading "Cheque Adjustment 
Suspense" in paragraph 124 of last year's Report to a balance of $141,392 representing 
unidentified net differences which were encountered between 1942-43 and 1961-62 in 
reconciling paid cheques with the payments made to the banks. In 1964-65 this balance 
was written off to net debt under authority of Department of Finance Vote 27d, Appro- 
priation Act No. 2, 1965. 

175. Public Service Superannuation Account. A statement of this Account appears in 
paragraph 159 of this Report. In 1964-65 the Account was credited (and a deferred charge 
account was debited) with a special Government contribution of $169,457,000 representing 
the total of: the actuarial deficiency in the Account as of December 31, 1962 with interest 
to December 31, 1964, amounting to $119,556,000; the actuarial deficiency arising from 
salary increases authorized in 1963-64 with interest to December 31, 1964, amounting to 
$30,506,000; and the actuarial deficiency of $19,395,000 arising from salary increases 
authorized in 1964-65. As stated in paragraph 63, the deficiency of $119,556,000 was written 
off to net debt during the year and one-fifth of the deficiency of $49,901,000 resulting from 
salary increases authorized in 1963-64 and 1964-65 was charged to expenditure, leaving 
a balance of $39,921,000 in the deferred charge account to be written off to expenditure 
over the next four years. 

176. Canadian Forces Superannuation Account. A statement of this Account appears 
in paragraph 159 of this Report. In 1964-65 the Account was credited (and a deferred 
charge account was debited) with a special Government contribution of $67,202,000 
representing the amount of the actuarial deficiency in the Account arising from pay 
increases authorized for members of the Forces during the year. As stated in paragraph 63, 
one-fifth of the deficiency was charged to expenditure, leaving a balance of $53,762,000 
in the deferred charge account to be written off to expenditure over the next four years. 

177. Royal Canadian Mounted Police Superannuation Account. A statement of this 
Account appears in paragraph 159 of this Report. In 1964-65 the Account was credited 
(and a deferred charge account was debited) with a special Government contribution of 
$5,192,000 representing the amount of the actuarial deficiency in the Account arising from 
pay increases authorized for members of the Force during the year. As stated in paragraph 
63, one-fifth of the deficiency was charged to expenditure, leaving a balance of $4,153,000 
in the deferred charge account to be written off to expenditure over the next four years. 

Grown Corporations 

178. Section 85 of the Financial Administration Act requires that each Crown 
corporation prepare, in respect of each financial year, a balance sheet, a statement of 
income and expense and a statement of surplus containing such information as, in the case 



120 AUDITOR GENERAL'S REPORT 

of a company incorporated under the Companies Act (Canada Corporations Act with 
effect from July 1, 1965), is required to be laid before the company by the directors at an 
annual meeting. 

179. Section 87 of the Financial Administration Act requires the auditor of a Crown 
corporation to report annually to the appropriate Minister the result of his examination of 
the accounts and financial statements of the corporation, and the report is required to 
state whether, in his opinion : 

(a) proper books of account have been kept by the corporation; 
(6) the financial statements of the corporation 

(i) were prepared on a basis consistent with that of the preceding year and are in 

agreement with the books of account, 
(ii) in the case of the balance sheet, give a true and fair view of the state of the corpora- 
tion's affairs as at the end of the financial year, and 
(iii) in the case of the statement of income and expense, give a true and fair view of 
the income and expense of the corporation for the financial year; and 

(c) the transactions of the corporation that have come under his notice have been within 
the powers of the corporation under this Act and any other Act applicable to the 
corporation. 

In addition, the auditor is required to call attention to any other matter falling within 
the scope of his examination that in his opinion should be brought to the attention of 
Parliament. 

180. Section 87 of the Act further requires that the annual report of the auditor be 
included in the annual report of each corporation, and section 85 directs that such annual 
report be laid before Parliament by the appropriate Minister within fifteen days after he 
receives it from the corporation or, if Parliament is not in session, within fifteen days after 
the commencement of the next ensuing session. 

The financial statements of the various corporations, together with the related audit 
reports, are published in Volume III of the Public Accounts. 

181. Crown corporations classed as "agency" or "proprietary" corporations are listed 
in Schedules "C" and "D" to the Financial Administration Act. Those in the former class 
are responsible, in general, for the management of procurement, construction, service and 
disposal activities on behalf of the Crown. Those in the latter class are responsible for the 
management of lending or financial operations, and for the management of commercial and 
industrial operations involving the production of or dealing in goods and the supplying of 
services to the public. 

182. The Auditor General is the auditor of the following Crown corporations whose 
accounts and financial statements were examined for their financial years terminating 
during, or coinciding with, the fiscal year ended March 31, 1965: 






AUDITOR GENERAL'S REPORT 

Corporation Class 



121 



Reporting Minister 



Atomic Energy of Canada Limited Agency Chairman of the Committee 

of the Privy Council on 
Scientific and Industrial 
Research 

Canadian Arsenals Limited Agency Industry 

Canadian Broadcasting Corporation Proprietary Secretary of State 

Canadian Commercial Corporation Agency Industry 

Canadian Corporation for the 1967 World 

Exhibition Trade and Commerce 

Canadian National (West Indies) Steamships, 

Limited Agency Transport 

Canadian Overseas Telecommunication 
Corporation Proprietary Transport 

Canadian Patents and Development Limited . . . Agency Chairman of the Committee 

of the Privy Council on 
Scientific and Industrial 
Research 

Centennial Commission Agency Secretary of State 

Cornwall International Bridge Company 

Limited Proprietary Transport 

Crown Assets Disposal Corporation Agency Industry 

Defence Construction (1951) Limited Agency National Defence 

Eldorado Aviation Limited Proprietary Trade and Commerce 

Eldorado Mining and Refining Limited Proprietary Trade and Commerce 

Export Credits Insurance Corporation Proprietary Trade and Commerce 

Farm Credit Corporation Proprietary Agriculture 

The National Battlefields Commission Agency Northern Affairs and 

National Resources 

National Capital Commission Agency Public Works 

National Harbours Board Agency Transport 

Northern Canada Power Commission Agency Northern Affairs and 

National Resources 
Northern Ontario Pipe Line Crown Corporation . Trade and Commerce 

Northern Transportation Company Limited Proprietary Trade and Commerce 

Park Steamship Company Limited Agency Transport 

Polymer Corporation Limited and subsidiary 
companies Proprietary Industry 

The St. Lawrence Seaway Authority Proprietary Transport 

The Seaway International Bridge Corporation, 

Ltd Proprietary Transport 



122 AUDITOR GENERAL'S REPORT 

183. Since the Auditor General has not been appointed the auditor of the following 
Crown corporations and public instrumentalities their accounts were not examined by 
him during the year: 

Corporation or Instrumentality Class Reporting Minister 

Air Canada Proprietary Transport 

Bank of Canada Finance 

Canadian National Railways Proprietary Transport 

The Canadian National Railways Securities 

Trust Proprietary Transport 

The Canadian Wheat Board Trade and Commerce 

Central Mortgage and Housing Corporation Proprietary Citizenship and Immigra- 
tion 

Industrial Development Bank Finance 

In its Eighth Report 1964 (see Appendix 1, item 39) the Public Accounts Committee 
recommended that the Auditor General be appointed the auditor or the joint auditor of 
these corporations or instrumentalities. 

184. The paragraphs that follow deal with the various corporations audited by the 
Auditor General. In each case, an introductory comment describes briefly the origin of 
the corporation and the nature of its activity, and this is followed by comments regarding 
the Crown's equity in the corporation, a summary of the operations for the year in compari- 
son with the preceding year, and any other matter which might be of interest to the House 
of Commons. 

185. Atomic Energy of Canada Limited. This Company was incorporated in 1952 
under the Companies Act, 1934, pursuant to authority contained in the Atomic Energy 
Control Act, R.S., c.ll, to carry out research and development in nuclear power technology 
and allied fields and to promote uses of atomic energy. 

The head office of the Company is in Ottawa. Nuclear reactors and major research 
and development laboratories are maintained at Chalk River, Ontario. The Whiteshell 
nuclear research establishment, situated 65 miles north of Winnipeg, is in operation and, 
although still incomplete, complements the Chalk River nuclear laboratories. The Com- 
pany has constructed some 268 housing units, an apartment building and a shopping 
centre in a new town called "Pinawa" to accommodate the employees and their families at 
the WTiiteshell establishment. The Commercial Products division in Ottawa is responsible 
for the processing of radioisotopes produced in the Company's reactors, the designing of 
equipment for the use of radioactive materials, and the marketing of products and 
equipment on a commercial basis. The Power Projects division, located in Toronto, is 
responsible for the engineering, development, construction and management of nuclear 
power generating projects. A nuclear power demonstration plant was constructed at 
Rolphton, Ontario, to produce steam for sale to the Hydro-Electric Power Commission of 
Ontario to generate electric power. The Company, in co-operation with the Hydro-Electric 
Power Commission of Ontario, is building Canada's first full-scale nuclear power generating 
station at Douglas Point, Ontario. It is expected that the station will be commissioned in 1966. 






AUDITOR GENERAL'S REPORT 123 

The Company's accumulated costs of research facilities at Chalk River, Whiteshell 
and Rolphton, charged to research expense and financed by parliamentary appropriations, 
amounted to $177,086,000 at March 31, 1965. The cost of the Douglas Point generating 
station, amounting to $44,732,000 at the year-end, is being financed by Government of 
Canada loans. 

The Crown's equity in the Company at March 31, 1965 totalled $7 1,346,000 compris- 
ing: loans for housing, $8,840,000; loans for construction of Douglas Point generating 
station, $44,994,000; capital stock, $15,000,000; and retained earnings, $2,512,000. 

A comparative summary of income and expense for the past two years follows: 

Year ended March 31 

1965 1964 

Research Program — Operating 

Expense $ 38,445,000 $ 34,063,000 

Income: Gross income from housing accommodation, hospitals, 

transportation, sales of steam, etc 3,594,000 2,605,000 

Excess of expense over income $ 34,851,000 $ 31,458,000 

Provided for by: 

Parliamentary appropriation $ 34,861,000 $ 31,469,000 

Less: Unexpended balance refundable to Government of 

Canada 10,000 11,000 

$ 34,851,000 $ 31,458,000 

Research Program — Capital 

Expense $ 17,327,000 $ 14,219,000 

Provided for by: 

Parliamentary appropriation $ 10,307,000 $ 13,466,000 

Retained earnings 7,020,000 753,000 

$ 17,327,000 $ 14,219,000 

Commercial Operations 

Income $ 7,416,000 $ 4,403,000 

Expense : 

Cost of sales 3,680,000 2,138,000 

Research, selling and administrative 3,074,000 2,151,000 

6,754,000 4,289,000 

Excess of income over expense $ 662,000 $ 114,000 

The increase of $4,382,000 in research operating expense was due in part to increases 
in salaries and wages including welfare benefits, $1,972,000, and professional and special 
services, $261,000. In addition, there was no counterpart during the year for revenue from 



124 AUDITOR GENERAL'S REPORT 

the NRU reactor amounting to $1,239,000 which was applied as a reduction of expense in 
1963-64. The increases in personnel of 133 at the Whiteshell establishment, 67 at the Power 
Projects division, and 61 at Chalk River and head office, together with normal increases 
in rates of remuneration, account for the increase in salaries and wages. Increased activities 
at the Whiteshell establishment and the Power Projects division largely account for the 
increased costs with respect to professional services. 

186. Canadian Arsenals Limited. This Company, with its head office in Ottawa, was 
incorporated in 1945 under the Companies Act, 1934, pursuant to authority contained in 
the Department of Reconstruction Act, 1944, c. 18. The main objects of the Company are 
the operation, maintenance and supervision of arsenals and other plants for the production 
of military stores and equipment, including the maintenance of physical facilities and 
manufacturing skills so that the operations may be expanded on short notice. 

A reduction in operations has taken place in the last ten years. The Company's sales 
reached a peak in 1954-55 when Korean war contracts were still being completed. Except 
for a minor increase in 1961-62, there has been a steady decline in sales from $80 million 
in 1954-55 to $7.5 million in 1964-65. Over the years, the Company has been the custodian 
of Crown-owned plants representing an investment of over $100 million. During 1964-65, 
the Government sold the Explosives division plant, Valleyfield, Quebec, (see paragraph 
59) and transferred the land and buildings of the Instrument and Electronics division, 
Scarborough, Ontario, to the Department of Public Works. At March 31, 1965 the Company 
was the custodian of seven plants, the total cost of which was $70 million, but only four 
plants were in operation. 

At March 31, 1965 the Company's operations were financed by working capital ad- 
vances of $7,500,000 from the Minister of Finance. Advances from the Defence Production 
Revolving Fund, amounting to $1,250,000, were repaid during the year. 

The following is a comparative summary of the results of operations for the last two 
years : 

Year ended March 31 

1965 1964 

Income — 

Sales $ 7,534,000 $ 10,051,000 

Miscellaneous 590,000 651,000 

8,124,000 10,702,000 

Expense — 

Cost of sales, including indirect labour and other overhead 

expenses absorbed 6,897,000 9,102,000 

Indirect labour and other overhead expenses not absorbed in 

cost of sales 4,226,000 4,763,000 

Plant shut-down costs 1 ,029,000 362,000 

Administrative expenses 449,000 733,000 

12,601,000 14,960,000 

Excess of expense over income $ 4,477,000 $ 4,258,000 



AUDITOR GENERAL'S REPORT 125 

The $4,477,000 required to meet the excess of expense over income was provided by 
a parliamentary appropriation through the Department of Defence Production. 

Indirect labour and overhead expenses for the year totalled $6,900,000, compared with 
$8,688,000 for the previous year, of which $2,674,000 was included in cost of sales. It has 
been the Company's practice to apply overhead expenses on direct labour costs at rates 
which theoretically would have absorbed all overhead expenses if all plants had been 
operating on a normal one-shift basis. The extent to which these rates were not sufficient to 
recover overhead costs, $4,226,000, is described in the above summary as indirect labour 
and other overhead expenses not absorbed in cost of sales. 

Plant shut-down costs of $1,029,000 include the write-down of inventories, termination 
leave and other costs with respect to the sale of the explosives plant at Valleyfield, Quebec; 
expenditures incurred in the transfer and disposal of machinery and equipment and other 
costs in closing down the instrument and electronics plant at Scarborough, Ontario; and 
costs of transferring small ammunition and quick firing case line facilities to other plants 
from the Dominion Arsenal plant at Quebec City, preparatory to its closing. 

The Company had $207,000 on deposit with an insurance company at March 31, 1965 
in respect of an insurance policy which provides life, medical, surgical and other insurance 
benefits to employees and their dependents. The amount represents the excess of premiums 
over charges for claims incurred plus administrative fees charged by the insurance company. 
It is available for possible catastrophe, excessive claims or additional benefits without 
increase in premiums. During the year the amount on deposit was deemed to exceed the 
contingency reserve requirements. Accordingly, on December 1, 1964 the sum of $200,000 
was used to pay for a single premium life insurance policy for participants in the plan who 
have been in the Company's service for at least 77 months. Employees' premiums and the 
Company's matching contribution paid in during the year amounted to $149,000, and 
interest amounting to $19,000, calculated at approximately 5%, was credited during the 
year by the insurance company. 

Inventories on hand at the year-end were less by $2,370,000 or 56.6% than their level 
at March 31, 1964. The inventory reduction included write-offs of $345,000 largely due to 
the closing of the plants referred to previously. 

187. Canadian Broadcasting Corporation. This Corporation, established by the 
Canadian Broadcasting Act, 1936, c. 24, superseded by the Broadcasting Act, 1958, c. 22, 
operates the national television and radio broadcasting services and also administers an 
international shortwave service on behalf of the Government of Canada. The head office 
of the Corporation is in Ottawa, with regional offices in St. John's, Halifax, Montreal, 
Ottawa, Toronto, Winnipeg, Edmonton and Vancouver and an engineering headquarters 
in Montreal. 

In previous years, the Corporation derived its funds for both capital and operating 
requirements in excess of advertising revenue from grants provided by parliamentary 
appropriations. However, funds for its capital requirements for 1964-65 were provided by 
loans of $14,250,000 repayable in equal annual instalments over 20 years with interest 
payable at rates of b\% and 5f% per annum (see paragraph 55). 



126 AUDITOR GENERAL'S REPORT 

At March 31, 1965 the Crown's equity in the Corporation amounted to $55,190,000 
represented by capital assets at cost of $81,566,000, less accumulated depreciation of 
$36,209,000, and working capital of $9,833,000 (including $833,000 unexpended balance of 
Government of Canada loans to finance the acquisition of capital assets) . 

The following is a comparative summary of the results of operations for the last two 
years : 

Year ended March 31 

1965 1964 

Expense — 

Cost of production and distribution: 

Cost of programs $ 79,619,000 $ 74,388,000 

Network distribution 10,727,000 10,428,000 

Station transmission 5,004,000 4,407,000 

Payments to private stations 4,752,000 4,927,000 

Commissions to agencies and networks 3,719,000 3,805,000 

103,821,000 97,955,000 

Operational supervision and services 10,317,000 9,067,000 

SeUing and general administration 8,459,000 7,812,000 

Emergency broadcasting 869,000 624,000 

Interest on loans to finance the acquisition of capital assets. . . . 374,000 — 

Total expense including depreciation 123 , 840 , 000 115 , 458 , 000 

Income — 
Advertising revenue, etc 33,449,000 33,010,000 

Net expense $ 90,391,000 $ 82,448,000 



The parliamentary grant "in respect of the net operating amount required to discharge 
the responsibilities of the national broadcasting service" for the year of $85,869,000 com- 
prising net expense of $90,391,000 shown above, less depreciation of $4,522,000 charged for 
cost ascertainment purposes, was provided by the Government of Canada under authority 
of Canadian Broadcasting Corporation Vote 1, Appropriation Act No. 10, 1964. 

The net operating amount required by the Corporation increased by $7,492,000 
from $78,377,000 for the year ended March 31, 1964 to $85,869,000 for the year ended 
March 31, 1965, an increase of 9.5% compared with $5,722,000 or 7.9% in the previous 
year. The increase in expense experienced in practically all departments was attributable 
to many factors. Salaries and wages increased by $4,314,000 mainly due to the implementa- 
tion of wage increment provisions of collective bargaining agreements, salary increases to 
supervisory staff and the engaging of an additional 284 employees primarily to staff two 
new television stations and one new radio station. Other increases were attributed to 
additional television broadcasting hours as a result of the addition of the two new television 
stations, a general rise in radio AM and FM program broadcasting costs and in costs due 
to expanded microwave and line facilities for both radio and television. The increase of 
$439,000 in income is accounted for by a rise of $864,000 in television advertising offset by 
a decline of $384,000 in radio advertising and $41,000 in other income. 



AUDITOR GENERAL'S REPORT 127 

The overtime content of salaries and wages was $3,398,000 compared with $3,202,000 
in the previous year. Cost of programs amounting to $79,619,000 includes payments to 
employees for scheduled hours during daily or weekly tours of duty which are in excess 
of the actual hours of attendance, which we estimate amounted to $450,000 during the 
year (see paragraph 56). In addition, an estimated $150,000 was paid to employees as pre- 
mium pay for elapsed time between assigned and actual meal periods and for turn-around 
periods, being the difference between elapsed time and an established minimum period of 
12 hours from the end of one tour of duty to the commencement of the next. 

The Statement of Operations segregates Cost of Production and Distribution under 
the headings of "Programs without Advertising, $71,504,000" and "Programs with 
Advertising, $32,317,000". The former comprises two types of programs, those which are 
available for advertising but which have not attracted advertising revenue, and programs 
of a public service nature which, because of Corporation policy, are not available to 
prospective advertisers. A segregation of the total cost of "Programs without Advertising" 
under these headings follows: 

Programs News and 
Available Public 

for Service 

Advertising Programs Total 

Cost of programs $ 23,001,000 $ 36,214,000 $ 59,215,000 

Network distribution 2.606,000 5,827,000 8,433,000 

Station transmission 1,328,000 2,528,000 3,856,000 

$ 26,935,000 $ 44,569,000 $ 71,504,000 



The total cost of production and distribution of programs with advertising potential 
was therefore $59,252,000, comprising the $26,935,000 shown above and the cost of 
programs with advertising amounting to $32,317,000. As gross advertising revenue 
amounted to only $32,872,000 the difference of $26,380,000 was financed by the parliamen- 
tary grant. The recommendation of the Public Accounts Committee in its Fifth Report 1964 
that this information be disclosed more clearly in the Corporation's annual Statement of 
Operations is considered to have been implemented by means of an explanatory footnote 
to its financial statements. 

The following asset balances at March 31, 1965 are compared with the corresponding 
balances at March 31, 1964: 

March 31 

1965 1964 

Programs completed and in process of production $ 5 , 249 , 000 $ 4 , 792 , 000 

Film and script rights 1 ,845,000 1 ,771 ,000 

Engineering and production supplies 1 , 732 , 000 1 , 652 , 000 

$ 8,826,000 $ 8,215,000 



Programs completed and in process of production are programs recorded in advance 
of broadcast on videotape and on film for the English and French networks and represented 
an increase of $457,000 over the preceding year. 



128 AUDITOR GENERAL'S REPORT 

The balances shown in the above tabulation are after giving effect to the following 
write-offs : 

Programs completed and in process of production — abandoned and cancelled because 

of technical deficiencies, scheduling difficulties or pre-emptions $ 338 , 000 

Film rights — expired films not telecast because of unsuitability of program content, 

technical deficiencies or pre-emptions 85 , 000 

Script rights — expired or unsuitable 90 , 000 

Engineering and production supplies — unusable and obsolete 26,000 

$ 539,000 



The comparable write-offs in the previous year totalled $232,000. 

Additions of $13,438,000 to fixed assets were financed to the extent of $13,417,000 out 
of the loans of $14,250,000 previously referred to and to the extent of $21,000 from proceeds 
of sale of assets. Major capital expenditures included technical equipment, $3,473,000; 
transmitters, towers and antennae, $3,137,000; land for Place Radio-Canada, Montreal, 
$2,000,000; transmitter buildings, radio studios, etc., $1,913,000 and construction in 
progress, $1,814,000, mainly for Place Radio-Canada and studios and offices in St. John's 
and Quebec City. 

Capital assets in the amount of $81,566,000 include the sum of $8,942,000 expended 
during the last six years in connection with the planned consolidation of facilities in 
Toronto, Montreal and Ottawa. The present estimate of the cost of future consolidation 
of facilities for the Corporation is $127,842,000, shown below by locations, of which, sub- 
ject to the provision of funds by Parliament, approximately $4,366,000 will be expended 
during the year ending March 31, 1966 and $123,476,000 during subsequent years: 

Montreal $ 56,726,000 

Toronto 39,194,000 

Prairies 10,000,000 

British Columbia 8,700,000 

Maritimes 7,000,000 

Ottawa 6,222,000 

$ 127,842,000 



In our reports to management for the last three years we have referred to the Corpora- 
tion's physical inventory of its capital assets and the uncompleted reconciliation with the 
accounting records. This undertaking, begun in 1962, is now scheduled for completion by 
the Corporation in 1966. 

We also examined the accounts and financial statements of the CBC Pension Board 
of Trustees and reported separately to the Trustees under date of June 4, 1965. An 
actuarial examination of the CBC Pension Plan as at March 31, 1964 indicated a possible 
actuarial deficiency in respect of future benefits payable of $6,682,000 or about 6.7% of the 
$100 million actuarial value. The Trustees recommended to the Corporation that no 
action be taken until the further analysis being made in June 1965 was completed and the 
effect of integration with the Canada Pension Plan was determined. 



AUDITOR GENERAL'S REPORT 129 

In our previous Reports we have made reference to the need for an independent study 
of the size, complexity and cost of the Corporation's organizational structure. The subject 
was discussed by the Standing Committee on Public Accounts of the House of Commons 
at meetings held on July 2 and 7, 1964 when this Committee was examining the Corpora- 
tion's accounts for its 1962 and 1963 financial years. As a result of the discussions which 
took place at these meetings, the Public Accounts Committee made the following recom- 
mendations in its Fifth Report 1964: 

1. Annual report of the Corporation 

The Committee recommended that the President and Board of Directors of the 
Corporation take steps to improve the contents of the Corporation's annual report by 
including therein supplementary financial information concerning its operating and 
capital budgets and expenditures, for the purpose of providing additional information 
to Parliament and the public. 

2. Statement of Operations 

The Committee recommended that the President and the Board of Directors 
realign the format of the annual Statement of Operations of the Corporation in a manner 
designed to show separately in future for each fiscal year (1) the cost of programs pro- 
duced without advertising but which were available for sale, and (2) the gross profit 
or loss derived from the sale of advertising from all sources. 

3. Size of operating and capital requirements 

The Committee expressed concern at the levels the Corporation's spending on 
operating and capital accounts has reached since television was first introduced into 
the national service in 1955. It commended consideration of this problem as one of the 
primary and immediate objectives of the Advisory Committee on Broadcasting, for- 
mation of which was announced by the government on May 25, 1964. 

4. Authority of Comptroller over regional accountants 

The Committee was disturbed to learn that the authority of the Comptroller over 
the accounting staffs at the regional centres of the Corporation across Canada is not 
clearly defined and expressed agreement with the view of the Auditor General that the 
regional accountants should be responsible directly to the Comptroller at head office 
in the interests of effective internal financial control. The Committee expressed the 
opinion that a clear definition of this responsibility is overdue and was pleased to be 
advised by the President that it will receive early attention. It requested the Auditor 
General to advise the Committee when this matter has been settled to his satisfaction. 

5. Report of the Royal Commission on Government Organization 

The Committee recommended that the Secretary of State table an official memor- 
andum in the House presenting the Corporation's views and its replies to each of the 
matters dealt with by the Royal Commission in its Report 19 and that this be done 
before the estimates of the Corporation are considered by the House. 

With respect to the Committee's first recommendation, the Corporation has provided 
more detailed information in its 1965 annual report and we believe that this should 
commend itself to the Members of the House of Commons. The Committee's second 
recommendation, as explained earlier, was likewise implemented by the Corporation when 
preparing its Statement of Operations for inclusion with its financial statements in its 1965 
annual report. 



130 AUDITOR GENERAL'S REPORT 

The third recommendation was dealt with by the Advisory Committee on Broadcasting 
in its report to the Secretary of State made public on September 9, 1965. The fourth 
recommendation concerning the authority of the Comptroller over the regional account- 
ants was resolved by an executive directive issued by the President on December 17, 1964 
promoting the Comptroller to Vice-President, Finance and he now has effective control 
and supervision over the regional accountants across the country. 

The fifth recommendation has not yet been implemented in the manner requested by 
the Public Accounts Committee (see Appendix 1, item 14). The Advisory Committee on 
Broadcasting, in commenting on the Royal Commission's studies at length in Chapter 8 of 
its report, was furnished by the Corporation with a 118-page memorandum on its views of 
Report 19. Presumably this memorandum will be available for tabling in the House in 
response to the request made by the Public Accounts Committee and will provide the 
information sought by that Committee. 

188. Canadian Commercial Corporation. This Corporation which was established in 
1946 by the Canadian Commercial Corporation Act, R.S., c. 35, provides procurement 
services in Canada for the governments of other countries and for international organiza- 
tions. The Corporation's main customer is the United States Government. During the 
year $161 million was expended by the Corporation on behalf of its customers as compared 
with $217 million in the preceding year. 

The equity of the Government of Canada in the Corporation as at March 31, 1965, 
amounted to $3,875,000 consisting of $3,500,000 working capital advances, $150,000 reserve 
for United States exchange, and $225,000 reserve for contingencies. 

A comparative summary of the Corporation's operations for the last two years 
follows : 

Year ended March 31 

1965 1964 

Income — 

Purchase surcharges $ 100,000 $ 145,000 

Interest earned 98,000 133,000 

Other income 7,000 — 

205,000 278,000 

Expense — 

Salaries 67,000 444,000 

Other expense 4,000 137,000 

71,000 581,000 

Net profit (loss) $ 134,000 $ (303,000) 



In previous Reports we have noted that the Department of Defence Production has 
been providing purchasing and accounting services free of charge to the Corporation. 
With the implementation of the Board of Directors' decision that the management and 



AUDITOR GENERAL'S REPORT 131 

staff should be provided by the Department of Defence Production and the functions of 
the Corporation transferred to and performed by the Department, the provision of free 
services has reached the point where, since July 1, 1964, the administrative expenses paid 
by the Corporation comprise only the salaries of the President and his secretary together 
with some minor expenses, all other expenses being charged to Department of Defence 
Production Vote 1. As a result the Corporation's operations show a net profit of $134,000 
for the year compared with a net loss of $303,000 for the preceding year. 

When approving the Corporation's budget for 1964-65 the Minister of Finance 
suggested that periodic payments of surplus earnings be made by the Corporation into the 
Consolidated Revenue Fund in accordance with section 81(3) of the Financial Administra- 
tion Act. However, the Directors were of the opinion that, before doing this, a reserve for 
contingencies should be created to cover possible losses falling on the Corporation in 
respect of contracts with the United States and other governments. The Minister of 
Finance and Minister of Industry agreed to the creation of a reserve for contingencies in 
the amount of $225,000 and directed the Corporation to transfer this amount from surplus 
earnings. 

Since the Corporation has been charged with only a small portion of its actual expenses, 
the year's net profit of $134,000 does not in our view represent earnings or surplus which 
may be used to create a reserve for contingencies. 

189. Canadian Corporation for the 1967 World Exhibition. This Corporation was 
established under the Canadian Corporation for the 1967 World Exhibition Act, 1962-63, 
c. 12, as amended by 1963, c. 32, for the purposes of planning, organizing, holding and 
administering the International and Universal Exhibition to be held in Montreal in 1967 
in connection with the celebration of the Centennial of Confederation in Canada. An Act 
respecting the Canadian World Exhibition, passed by the Quebec Legislature in 1963, 
provides authority for the Province of Quebec and the City of Montreal to share with 
the Government of Canada in the financing of the Corporation. 

The Corporation consists of a Commissioner General, a Deputy Commissioner General 
and fourteen other directors appointed by the Governor in Council, seven of whom are 
appointed on the recommendation of the Lieutenant-Governor in Council of the Province 
of Quebec. 

Section 17 of the Act requires that the accounts and financial transactions of the 
Corporation shall be audited by the Auditor General of Canada and the Quebec Provincial 
Auditor. The auditors are to report annually in a manner similar to that required by the 
Financial Administration Act in respect of other Crown corporations. 

An agreement was concluded on January 18, 1963 between Canada, the Province of 
Quebec and the City of Montreal confirming their acceptance of the legislation establishing 
and governing the Corporation, and outlining certain "settlements" between the Corpora- 
tion and the three governments to be concluded after the closing of the Exhibition. As the 
latter would appear to be couched in general terms, it has been suggested to the manage- 
ment that, in order to avoid complications in the ultimate interpretation of the r elevant 



132 AUDITOR GENERAL'S REPORT 

clauses, the Corporation's legal officers should discuss these matters with the federal and 
provincial government departments concerned with a view to having the exact intent of 
the agreement more precisely stated. 

Section 8 of the Canadian Corporation for the 1967 World Exhibition Act provides 
that the Corporation shall submit a plan of organization to the Governor in Council and 
the Lieutenant-Governor in Council for approval, showing the number of officers and 
employees estimated to be required for the proper conduct of the business of the Corpora- 
tion, the proposed classes of positions and rates of compensation for each class and that 
the Corporation shall not employ an officer or employee except in accordance with the plan 
of organization so approved. 

The initial plan of organization was submitted and approved in April 1963, providing 
for a total establishment of 79 positions for 1963. A number of revised plans of organization 
have subsequently been submitted and approved providing for substantial increases in the 
establishment. The number of authorized positions as at December 31, 1964 was 540, the 
actual staff strength at that date being 489. The current revised plan of organization, 
approved by the Governor in Council on February 25, 1965, provides for progressive 
increases in the staff establishment up to a total of 997 positions by the end of 1965. The 
approval of the Lieutenant-Governor in Council has been received in respect of a portion 
of the plan covering the first half of 1965. 

Under section 10 of the federal Act, the Corporation was required to "submit for the 
approval of the Governor in Council and the Lieutenant-Governor in Council, its overall 
plan for the Exhibition, setting forth the various undertakings and projects proposed by 
the Corporation in connection with the planning, organizing, holding and administering 
of the Exhibition, the estimated cost of each such undertaking or project and an estimate 
of the total capital costs and operating costs of the Corporation in respect of the 
Exhibition". 

Any material changes in the plan, including estimates of costs, are to be submitted to 
the Governor in Council and the Lieutenant-Governor in Council for approval, and the 
Corporation may not initiate any undertaking or project, expend any money thereon or 
incur any liability therefor unless that undertaking or project is included in the approved 
overall plan or modification thereof. 

The first overall plan was submitted on December 20, 1963, and was approved by the 
Governor in Council and the Lieutenant-Governor in Council, showing an estimated net 
cost to the Corporation of $47,534,000. A revised plan was submitted early in 1965 and 
was approved by the Governor in Council and the Lieutenant-Governor in Council, 
increasing the estimated net cost to the Corporation to $63,864,000. A subsequent revised 
plan was approved by the Governor in Council on August 13, 1965 (P.C. 1965-1494) and 
by the Lieutenant-Governor in Council on August 25, 1965 (Order in Council No. 1677). 
The cost summary included in this current overall plan shows an estimated net cost to 
the Corporation of $61,581,000, made up as follows: 






AUDITOR GENERAL'S REPORT 133 

Construction costs $ 147,797,000 

Operating and administration costs 102,907,000 

250,704,000 

Revenues $ 123,999,000 

Salvage 9,085,000 

Assets 56,039,000 189,123,000 



Net cost $ 61,581,000 



Under the authority of the federal and provincial legislation, the activities of the 
Corporation are financed by funds provided by Canada, the Province of Quebec and the 
City of Montreal, and the aggregate of the grants made by the three governments must 
not exceed $20 million, $15 million, and $5 million respectively. In this connection reference 
is made to paragraph 57 of this Report. 

Section 12 of the federal Act provides that the Corporation, with the approval of the 
Minister of Finance and the Minister of Finance of Quebec, may borrow money for the 
purposes for which it is incorporated on the security of notes, bonds or debentures of the 
Corporation. Such notes, bonds or debentures are to be issued at such rates of interest and 
subject to such other terms and conditions as may be approved by the Governor in Council 
and the Lieutenant-Governor in Council, and are to be jointly guaranteed by Canada and 
Quebec. In addition, subsection (5) of section 12 provides that the Corporation may borrow 
money from the Minister of Finance for temporary purposes and the Minister of Finance, 
with the approval of the Governor in Council and subject to such terms and conditions as 
the Governor in Council may prescribe, may lend money to the Corporation for such 
purposes out of the Consolidated Revenue Fund, but the aggregate of all amounts loaned 
to the Corporation under this subsection and outstanding at any time shall not exceed $1 
million. 

The financial statements of the Corporation for the year ended December 31, 1964 
showed that the grants made by the three governments in respect of 1963 and 1964 totalled 
$18,878,000, of which the Government of Canada contributed $9,439,000, the Government 
of the Province of Quebec, $7,079,000 and the City of Montreal, $2,360,000. The 1964 
report of the joint auditors, made in compliance with section 17 of the Canadian Corpora- 
tion for the 1967 World Exhibition Act, drew attention to the fact that the sum of the 
grants received by the Corporation from the participating governments ($18,878,000 as 
shown above) and the outstanding commitments under major contracts entered into prior 
to the year-end (approximately $26,000,000) exceeded the sum of the statutory amounts 
($40 million) which could be paid by the participating governments under the existing 
legislation. 

Arrangements have since been concluded by the Corporation to borrow funds from 
the Minister of Finance to meet its future corporate needs. Vote L26b of the Supplementary 
Estimates for 1965-66, seven-twelfths of which was approved by Appropriation Act No. 
6, 1965, assented to on June 30, 1965, reads: 



134 AUDITOR GENERAL'S REPORT 

L26b — To provide for the purchase, acquisition, and holding by the Minister of Finance of 
securities issued by the Canadian Corporation for the 1967 World Exhibition 
pursuant to subsection (1) of section 12 of the Canadian Corporation for the 1967 
World Exhibition Act and to subsequently dispose thereof $80,000,000. 

Section 15 of the Canadian Corporation for the 1967 World Exhibition Act requires 
that the Corporation submit a capital budget and an operating budget annually to the 
Minister designated to act as the Minister for the Exhibition and to the Minister of 
Industry and Commerce for the Government of the Province of Quebec for their approval 
and for the approval of the Minister of Finance and the Minister of Finance of Quebec, and 
the capital budget so approved shall be laid by the first-mentioned Minister before Parlia- 
ment. The approved revised capital budget for 1964 provided for an estimated cash require- 
ment during the year of $21,235,000. The actual outlays during the year amounted to 
$11,541,000, summarized below in comparison with the expenditures for the preceding 
year: 

Year ended December 31 



1964 1963 



Site preparation $ 676 , 000 $ — 

Roads and bridges 7, 134,000 — 

Utilities 693,000 — 

Landscape development 251 , 000 — 

Parking lots 61,000 — 

Buildings and special structures 1 , 749 , 000 — 

Mass transit system 371 , 000 — 

Temporary construction facilities 37,000 — 

Special engineering studies 135,000 289,000 

Office furniture and equipment and leasehold improvements 434,000 246,000 



$ 11,541,000 $ 535,000 



The substantial difference between the amount budgeted and the actual expenditure 
for the year was due mainly to low tenders for certain projects, changes in planning, un- 
required contingencies included in the budget and certain projects connected with under- 
ground services being behind schedule. Regarding the latter, the Corporation's officers 
were satisfied that while these projects were not started as early as expected, they were 
meeting the basic objective of being placed ahead of building construction on the site. 

The $11,853,000 Capital and Prepaid Development Costs appearing in the Corpora- 
tion's Balance Sheet as at December 31, 1964 consists of the $12,076,000 total expenditures 
for the two years, shown above, less $223,000 amortization and depreciation provided and 
included in the operating costs for the two years. This amount of $11,853,000 represents 
the proprietorship equity of the three governments at December 31, 1964. 






AUDITOR GENERAL'S REPORT 133 

The revised operating budget for 1964, approved by the Minister of Finance and 
the Minister of Finance of Quebec, amounted to $6,776,000. The net operating costs for 
the year, including amortization and depreciation, totalled $6,063,000, and are summarized 
in comparison with the expenses for the preceding year, as follows : 

Year ended December 31 



1964 1963 



Personnel expenses — 

Salaries and employee benefits $ 3,387,000 $ 373,000 

Travel and representation 294,000 81 ,000 

Recruitment and relocation of personnel 78,000 16,000 

Automobile rentals 54,000 2,000 



3,813,000 472,000 



Administrative expenses — 

Rent, light and power 329,000 59,000 

Postage, telephone and telegraph 134,000 28,000 

Office stationery and supplies 96,000 24,000 

Administrative services 72,000 39,000 

Legal fees 55,000 13,000 

Office furniture and equipment rental and maintenance 50,000 7,000 

Translation 47,000 4,000 

Architectural and engineering supplies 41 ,000 7,000 

Publications 33,000 8,000 

Directors' expenses and Executive Committee fees and expenses 22,000 18,000 

Miscellaneous 46,000 1 ,000 



925,000 208,000 



Advisory Committee's travel and subsistence expenses 65,000 8,000 



Other expenses — 

Advertising and publicity 934,000 87,000 

Consultants' fees and expenses 165,000 131 ,000 

Site protection 27,000 — 



1,126,000 218,000 



Total operating expenses 5,929,000 906,000 

Amortization and depreciation — 

Amortization of leasehold improvements 123,000 45,000 

Depreciation of furniture and equipment 41,000 14,000 



164,000 59,000 



6,093,000 965,000 

Bank interest earned 30,000 3,000 



Net operating costs $ 6,063,000 $ 962,000 



In our 1964 Report to the House of Commons, mention was made of certain trans- 
actions and practices originating in the closing months of the year 1963 which in the 
opinion of the joint auditors were inconsistent with those usually followed by Crown 
corporations and government agencies in similar circumstances. They were discussed in 
detail at that time with both the Commissioner General and the Deputy Commissioner 



136 AUDITOR GENERAL'S REPORT 

General who advised us that they considered the expenditures to be necessary. In accepting 
their explanations at that time, the auditors advised the management that further comment 
on the transactions and practices in question would be deferred until the completion of 
the examination of the Corporation's accounts for the 1964 fiscal year. 

The examination of the 1964 accounts disclosed the continued existence of these 
practices accompanied by a substantial increase in their cost to the Corporation. Accord- 
ingly, when meeting with the Board of Directors in March 1965 to review the Corporation's 
financial statements for the year 1964, the joint auditors placed their views on the trans- 
actions and practices in question before the Board, pointing out that the practices continued 
unchanged from the previous year, and indicating that however justifiable and prevalent 
such expenditures may be in private enterprise, payment of such costs from public funds 
was open to question. The members of the Board were advised that federal and provincial 
government departments, Crown corporations and other government agencies are not 
permitted to incur such costs as a general practice. Brief details of these practices and their 
cost to the Corporation up to December 31, 1964 are as follows: 

(1) At December 31, 1963 the Corporation had entered into one-year contracts for the 
rental of 15 cars for the use of senior officers and employees on a basis whereby each 
officer would pay $30 per month for his personal use of the car with the Corporation 
bearing all rental and fuel costs. Total expense for the Corporation during the year 
ended December 31, 1963 amounted to $2,000. During 1964, the number of automobiles 
under rental increased to 33 with the total expense to the Corporation for the year 
amounting to $54,000, made up of rental payments, parking costs and gasoline. 

(2) Last year the attention of management was drawn to relocation expenses involving 
payment of substantial moving, hotel and living expenses to several newly appointed 
senior officers and employees over extended periods pending relocation in new homes. 
We pointed out to management that in many cases relocation costs of this nature would 
not have qualified for payment under the regulations laid down by the federal or provin- 
cial Treasury Boards. The cost to the Corporation during the year ended December 31, 
1963 amounted to $9,000 involving reimbursement to eight newly appointed senior 
officers and employees, while for the year ended December 31, 1964 these costs amounted 
to $69,000 and involved reimbursement to 55 newly appointed officers. 

(3) During 1963 twelve of the Corporation's senior officers were insured by the Corporation 
under a special insurance policy, the Corporation paying premiums at the rate of $95 
per annum for each principal sum of $100,000 insured. In all cases the beneficiaries 
named were and remain the estates or dependents of the insured officers. The cost of 
this insurance to the Corporation in 1963 was $800. The same arrangement has continued 
through 1964 under a new policy at a rate of $72 per annum for each principal sum of 
$100,000 insured. At the close of the year, 48 of the Corporation's officers were so insured 
at an annual cost to the Corporation of $2,800. 

(4) The approved plans of organization show the number of officers and employees required, 
the proposed classes of positions and a salary range for each such class established with 
the approval of the federal and provincial Treasury Boards and the Civil Service 
Commission of Canada. Our review of appointments made by the Corporation indicated 
that in the case of many appointments to senior positions, initial or starting salaries had 
been paid at rates higher than the established minimum rates, and in certain cases the 
maximum rates had been paid immediately on appointment at some of the most senior 
levels. In a number of instances promotions had been given in 1963 to senior officers 



AUDITOR GENERAL'S REPORT 137 

within six months of their appointments, and a large number of officers in receipt of 
salaries of $10,000 per annum or more had received increases in 1964 ranging from 10% 
to 50%, the increases in three cases being over 51% with one as high as 92%. 

In the meeting referred to, the joint auditors expressed to the Board the hope that 
action might be taken toward eliminating or otherwise reducing the costs involved in the 
above described practices. The Deputy Commissioner General and the General Manager 
furnished reasons to the meeting why in their opinion the practices in question had been 
and continued to be justifiable, citing the exceptional circumstances under which the 
Corporation had been organized and is operating today. 

Several members of the Board pointed out that as most of the senior posts had been 
filled, costs of relocating new personnel as well as most of the major salary adjustments 
were now completed. The view was expressed, however, that there should be no barrier to 
prevent any changes being made in the practices criticized, and assurance was given by 
the members of the Board that greater vigilance would be exercised in checking such 
practices and their costs in future. 

190. Canadian National (West Indies) Steamships, Limited. The active operations of 
this Company ceased in 1958 on the sale of its fleet of eight vessels to Cuban interests. 

The Crown's equity in the Company at December 31, 1964 amounted to $542,000, 
represented by cash, $86,000, and balance due under agreement of sale of vessels, $470,000, 
less liability in respect of unclaimed matured bonds of $14,000. During the year the Com- 
pany received $48,000 in war claims, earned bank interest of $1,200 and expended $1,600 
on legal expenses. 

The balance due under agreement of sale of vessels represented the final instalment, 
due August 19, 1963, under terms of letter of credit confirmed by the Bank of America. 
Payment has continued to be prohibited by the Cuban Assets Control Regulations of the 
United States of America dated July 8, 1963, despite efforts of management to obtain 
release of the funds. 

191. Canadian Overseas Telecommunication Corporation. The objects of this Corpora- 
tion, established in 1949 by the Canadian Overseas Telecommunication Corporation Act, 
R.S., c. 42, are to establish, maintain and operate external telecommunication services 
generally, and to co-ordinate Canada's external telecommunication services with those of 
other nations. To these ends the Corporation, in 1950, acquired the Canadian external 
telecommunication facilities of Cable and Wireless Limited and Canadian Marconi Com- 
pany Limited, which provided cable and radio-telegraph circuits between Canada and 
Britain, Australia, New Zealand, New York and St. Pierre and Miquelon, and radio- 
telephone services to Britain and the West Indies. Since 1950 the Corporation has developed 
or participated with Commonwealth partners and other nations in the development of 
major extensions of and additions to the Canadian international telecommunication 
facilities and systems. In line with this policy, the Commonwealth Pacific Cable System, 
a multi-channel, multi-purpose cable between Canada and New Zealand and Australia, 



138 AUDITOR GENERAL'S REPORT 

was completed in December 1963 and an extension thereof into South-East Asia linking 
points at New Guinea, Guam, Hong Kong, Sabah and Singapore is expected to be com- 
pleted and become fully operative by the beginning of 1967. The Corporation made its 
initial capital contribution in 1964-65 as a participant in the establishment of a global 
commercial communications satellite system. 

The equity of the Crown in the Corporation amounted to $67,593,000 at March 31, 
1965, an increase of $1,814,000 over the equity at the end of the previous year, and consisted 
of advances of $55,054,000 for capital purposes and a surplus of $12,539,000. 

The capital requirements of the Corporation are financed in part by loans provided by 
parliamentary appropriations, with the balance provided out of accumulated earnings. 
The Corporation repaid $2,408,000 on advances received in previous years and in March 
1965 received a further $2,000,000 for capital purposes. Capital additions amounted to 
$6,483,000. At March 31, 1965 the estimated cost of completing approved capital projects 
was $30,930,000 of which $18,700,000 relates to the year ending March 31, 1966. 

The following is a summary of the income and expense of the Corporation for the past 
two years: 

Year ended March 31 

1965 1964 

Income — 

Telephone, telegraph, telex, circuit rentals, etc $ 15,355,000 $ 14,278,000 

Expense — 

Salaries, wages and employee benefits 3,613,000 3, 105,000 

Depreciation 4,016,000 2,855,000 

Rental of circuits, etc 1,894,000 1,996,000 

Interest 2,604,000 1,687,000 

Operation, maintenance and repairs — buildings, plant and 

equipment 1 ,832,000 1,126,000 

Other 673,000 575,000 

14,632,000 11,344,000 
Less : Estimated amount recoverable from Commonwealth Net- 
work 3,699,000 1 ,817,000 

10,933,000 9,527,000 

Profit before income tax 4,422,000 4,751,000 

Provision for income tax 2,201,000 2,365,000 

Net profit $ 2,221,000 $ 2,386,000 



Income increased by $1,077,000 or approximately 8% over that of the previous year, 
compared with an increase of 16% recorded last year. The increased revenue included 
increases in telephone, telegraph and telex revenue of approximately $2,220,000 offset in 
part by a substantial drop in circuit rental revenue as a result of the completion by other 
operators of alternative trans-Atlantic cables. Expenses increased by $3,288,000 or 29% 
over the previous year, due largely to considerably higher interest charges against 



AUDITOR GENERAL'S REPORT 



139 



operations together with the cost of operating and maintaining substantial newly-completed 
plant and equipment. There was a consequent increase in the estimated amount recoverable 
from the Commonwealth Network of $1,882,000. 

In the course of our examination we drew the attention of management to a number of 
progress payments totalling $1,745,000 for the Corporation's share of capital expenditures 
incurred by partners relating to one of the major cable projects. These were individually 
in excess of $50,000 and did not have the approval of the Governor in Council as is required 
by section 8 of the Canadian Overseas Telecommunication Corporation Act, although the 
Corporation had been notified by the Department of Transport that the total estimated 
cost of the project concerned had received Cabinet approval. It was also noted that dis- 
bursements of $343,000 for the leasing of additional circuits as a result of emergency 
conditions caused by cable breaks had not been approved by the Governor in Council. We 
were informed that the Corporation is presently seeking this approval. 



192. Canadian Patents and Development Limited. Section 17 of the Research Council 
Act, R.S., c.239, provides for the incorporation of one or more companies by the National 
Research Council for the purpose of exercising certain of the powers conferred upon the 
Council. Under this authority Canadian Patents and Development Limited was incorpora- 
ted in 1947 under the Companies Act, 1934, R.S., c. 53, for the purpose of making available 
to industry, through licensing arrangements, the inventions and new processes developed 
by the Council. The services of the Company, which is located at Ottawa, are available to 
government departments, publicly supported institutions and universities. 

At March 31, 1965 the Crown's equity in the Company was $1,186,000, comprising 
capital stock of $296,000 and surplus of $890,000. 

The following summary shows the results of the Company's operations for the year 
ended March 31, 1965 compared with the preceding year: 

Year ended March 31 

1965 1964 

Income — 

Royalties, licensing fees, etc $ 397,000 $ 376,000 

Less: Costs of licensing rights and related technical assistance, 
etc 35,000 25,000 

362,000 351,000 

Other income 49,000 41 ,000 

411,000 392,000 

Expense — 

Promotion and development 50,000 103,000 

Services provided by National Research Council 48,000 42,000 

Patent attorneys' fees and other patenting costs 44,000 38,000 

Salaries 31 ,000 29,000 

Awards to inventors 17,000 15,000 

Other expenses 4,000 16,000 

194,000 243,000 

Net profit $ 217,000 $ 149,000 



140 



AUDITOR GENERAL'S REPORT 



The increased income from royalties, licensing fees, etc., is largely attributable to four 
inventions, while there was a substantial reduction in royalties received on one other 
invention. The increase in the cost of licensing rights and related technical assistance, etc., 
was mainly due to an increase in royalties payable under an agreement with a university. 

The decrease in the cost of promotion and development is mainly attributable to the 
completion of a large development contract, with no contract comparable in size being 
entered into during the year. Outstanding commitments on development contracts 
amounted to approximately $25,000 at March 31, 1965. 

The increased cost of patent attorneys' fees and other patenting costs resulted from 
a general growth of activities related to the procurement of patents. The decrease in 
other expenses is chiefly accounted for by a substantial drop in legal fees and travel ex- 
penses. 



193. Centennial Commission. The Centennial Commission was established by the 
Centennial of Canadian Confederation Act, 1960-61, c.60, as amended by 1963, c.36, to 
promote interest in, and to plan and implement programs and projects relating to the 
Centennial of Confederation in Canada. The Commission, with its head office in Ottawa, 
consists of a Commissioner, an Associate Commissioner and twelve Directors, all appointed 
by the Governor in Council. 

The following is a comparative summary of expenses for the past two years and 
cumulative figures since the establishment of the Commission: 



Year ended March 31 



1965 



1964 



Cumulative 

from 

September 

29, 1961 



Programs and projects of national significance . % 2 , 439 , 000 $ 1 , 495 , 000 $ 4 , 208 , 000 
Grants to provinces for approved projects of 

lasting nature 976,000 976,000 

Administrative expenses: 

Salaries and employee benefits 494 , 000 272 , 000 774 , 000 

Professional and special services 90 , 000 45 , 000 135 , 000 

Travel 70,000 34,000 106,000 

Informational programs and publications 67,000 8,000 75,000 

Accommodation 37,000 25,000 62,000 

Other 104,000 64,000 180,000 

862,000 448,000 1,332,000 

Total expense $ 4,277,000 $ 1,943,000 $ 6,516,000 



Expenditures of $2,439,000 on programs and projects of national significance were 
provided for by a parliamentary appropriation. These expenditures include $863,000 paid 
to the Fathers of Confederation Memorial Citizens Foundation as the federal Government's 
1964-65 contribution toward the construction of the Fathers of Confederation Memorial 
Building at Charlottetown, P.E.L The Centennial Commission and various provincial 
governments are sharing the cost of this building equally, with the contribution of the 



AUDITOR GENERAL'S REPORT 141 

Commission limited to $2,800,000. To March 31, 1965 the Commission's contributions to 
this project totalled $2,419,000. Outlays to March 31, 1965 also included preliminary and 
excavation costs of $708,000 for the Canadian Centre for Performing Arts in Ottawa (now 
National Arts Centre). 

Section 10 of the Act directs that there shall be a special account in the Consolidated 
Revenue Fund to be known as the Centennial of Confederation Fund, to which shall be 
credited amounts appropriated by Parliament for purposes of the Fund. At the end of the 
previous year a balance of $3,000,000 was held by the Minister of Finance at the credit of 
the Fund and was available for grants to the provinces for approved projects of a lasting 
nature. During the year $4,000,000 was added to the Fund and grants aggregating $976,000 
were made to the provinces. A balance of $6,024,000 remained in the Fund on March 
31, 1965. 

Administrative expenses were provided for to the extent of $819,000 by a parliamen- 
tary appropriation, and accommodation and accounting services having an estimated cost 
of $43,000 were provided without charge by departments of the Government of Canada. 

194. Cornwall International Bridge Company Limited. The shares of this Company 
are owned equally by The St. Lawrence Seaway Authorit}^ and the Saint Lawrence Sea- 
way Development Corporation (a United States Government corporation). 

The Company has been in process of winding up since July 3, 1962, when it ceased to 
operate the toll bridge system across the St. Lawrence River between Cornwall, Ontario, 
and Rooseveltown, New York. The toll bridge system is now operated by The Seaway 
International Bridge Corporation, Ltd., a subsidiary of The St. Lawrence Seaway 
Authority. 

The equity of the Seaway entities in the Company at September 30, 1964 consisted 
of capital stock of $50,000 less a deficit of $9,000. 

During the year ended September 30, 1964, the Company transferred free of charge 
to the Town of Massena, New York, a bridge over the Racquette River, a road serving 
the bridge, and land for the road allowance. The remaining parcels of land owned by 
the Company have been offered for sale. 

195. Crown Assets Disposal Corporation. This Corporation, originally established as 
the War Assets Corporation in 1944 by the Surplus Crown Assets Act, R.S., c. 260, re- 
ceived its present name by a 1949 amendment to that Act. With certain specified excep- 
tions, the Corporation is responsible for the disposal of the surplus assets of all Govern- 
ment departments and most of the Crown corporations and agencies. The Corporation 
has entered into agreements with Britain and the United States whereby it also disposes 
of surplus property held by them in Canada. The head office of the Corporation is in 
Ottawa, with sales offices in a number of cities across Canada. 

As has been the case for a number of years, the Corporation was authorized for the 
1964-65 year to retain 4% of the net proceeds of sales of lands and buildings and of interest 
on long-term sales agreements and 10% of the net proceeds of all other sales to meet its 



142 AUDITOR GENERAL'S REPORT 

administrative and other expenses. A summary of the Corporation's income and expense 
for the year together with comparable figures for the preceding year follows : 

Year ended March 31 

1965 1964 

Income — 

Portion retainable by the Corporation from net sales and other 

income earned $ 1,349,000 $ 832,000 

Expense — 

Salaries 496,000 453,000 

Rent 55,000 55,000 

Employees' welfare benefits 48,000 43,000 

Printing, stationery and office supplies 31,000 24,000 

Telephone, telegraph and postage 27,000 23,000 

Net depreciated cost at March 31, 1964 of office furniture and 

equipment, etc., written off 21,000 — 

Legal and advertising 15,000 5,000 

Travel 14,000 15,000 

Office furniture and equipment purchased during year 12,000 — 

Provision for depreciation of capital assets — 5,000 

Other expenses 2,000 1 ,000 

721,000 624,000 

Excess of income over expense $ 628,000 $ 208,000 



The $517,000 increase in income was due to a larger volume of sales, resulting mainly 
from reductions in the defence programs, from the net proceeds of which the Corporation 
retains the authorized percentages referred to above. A major part of the $97,000 increase 
in expense resulted from salary increases retroactive to October 1, 1963, a staff increase 
related to the increased volume of sales, the write-off of the net depreciated cost of capital 
assets, and the cost of office furniture and equipment purchased during the year which 
was charged to expense instead of being capitalized as in former years. The cost of future 
acquisitions of office furniture and equipment will be charged as an expense of the year 
in which the expenditure is incurred. 

Pursuant to section 81(3) of the Financial Administration Act, the Corporation was 
directed to pay to the Receiver General, as of March 31, 1959, and from time to time 
thereafter but at intervals of not longer than six months, all of its surplus in excess of 
$100,000. The $628,000 excess of income over expense for the year was, in consequence, 
paid to the Receiver General, leaving the surplus balance unchanged at $100,000. 

The equity of the Crown in the Corporation's Agency Account at March 31, 1965 
was $5,538,000, compared with $5,197,000 at the end of the preceding year, and was 
largely represented by amounts totalling $4,789,000 receivable under long-term interest- 
bearing sales agreements. 






AUDITOR GENERAL'S REPORT 143 

The transactions in the Agency Account during the year, compared with the pre- 
ceding year, are summarized as follows : 

Year ended March 31 

1965 1964 

Sales made on behalf of — 

Government of Canada $ 16,101,000 $ 10,194,000 

Other principals 958,000 822,000 

Interest 208,000 223,000 

17,267,000 11,239,000 

Less: Direct costs relating to sales 52,000 42,000 

17,215,000 11,197,000 
Deduct: 

Portion retainable by the Corporation from net sales and other 

income earned 1,348,000 832,000 

Remittances to the Receiver General 14,666,000 10,314,000 

Other remittances 979,000 642,000 

16,993,000 11,788,000 

Increase (decrease) in equity: 

Government of Canada 341,000 (687,000) 

Other principals (119,000) 96,000 

$ 222,000 $ (591,000) 



Sales increased by $6,043,000 due primarily to the increase in the number of sales 
involving substantial amounts which resulted from the disposal of defence installations, 
including land, buildings, equipment, as well as ships and other assets. 

In its Seventh Report 1964 the Public Accounts Committee recommended that the 
sales and inspection procedures of the Corporation be revised with a view to improving 
sales techniques. In February 1965 the Minister of Industry advised us that steps had 
been taken by the Corporation to revise and upgrade its operating instructions in the 
area of pre-sales analysis and inspection. He also stated that the Corporation proposed 
to undertake a more aggressive sales campaign in such areas as market research and 
analysis, the development of new methods of improving its solicitation lists, and the 
exploring of ways and means of interesting new and substantial merchandising outlets. 

196. Defence Construction (1961) Limited. This Crown-owned agency was incorporated 
in 1951 under the Companies Act, 1934, pursuant to the authority in section 7 of the De- 
fence Production Act, R.S., c. 62. The Company is responsible for awarding and super- 
vising contracts for defence construction projects. Funds to finance the projects are pro- 
vided by the departments concerned, or by the United States Government for projects 
undertaken on its behalf. Expenditures on defence construction projects which were 
approved by the Company for payment by the Department of National Defence and by 
the United States Government increased by $3.2 million from $29.3 million in 1963-64 to 



144 AUDITOR GENERAL'S REPORT 

$32.5 million in 1964-65. The increase in expenditure reflects to a great extent the high 
proportion of the year's work devoted to airfield runway and taxiway projects, which 
can be completed more quickly than work on other construction projects of the same 
dollar value. 

Funds to cover the Company's operating expenses are provided annually by an appro- 
priation of the Department of Defence Production. During the year, in order to show the 
full extent of the Company's operations, expenditures made on a recoverable basis were 
charged to the various expense classifications, instead of being recorded only as accounts 
receivable as in prior years and the amounts recovered or recoverable were shown as income. 
The figures for the preceding year were adjusted accordingly and are shown in comparison 
with the operating results for the year in the following summary: 

Year ended March 31 



1965 1064 



Expense — 

Salaries and living allowances $ 3,035,000 $ 2,452,000 

Employee welfare benefits 219,000 178,000 

Travel and removal 160,000 188,000 

Other expenses 328,000 315,000 



3,742,000 3,133,000 



Income — 

Reimbursement for engineering and administrative services. . . . 1,540,000 622,000 

Other income 2,000 1,000 



1,542,000 623,000 



Net expense $ 2,200,000 $ 2,510,000 



The increase in income and expense is the result of an increase in the volume of work 
on special projects performed on a recoverable basis for government departments and 
agencies. It will be noted, however, that the increase in expense was $310,000 less than 
the increase in income. This is more than accounted for by a decrease during the year of 
$324,000 in salaries and related costs due to a reduction in the number of employees engaged 
on the Company's regular work. 

197. Eldorado Aviation Limited. This Company was incorporated in 1953 under the 
Companies Act and is a wholly-owned subsidiary of Eldorado Mining and Refining 
Limited. Operating from headquarters in Edmonton, it provides air transportation services 
almost entirely to its parent company and Northern Transportation Company Limited, 
which is also a subsidiary of Eldorado Mining and Refining Limited. These two companies 
share the cost of operations of Eldorado Aviation Limited on a "cost per ton-mile" basis. 

The equity of Eldorado Mining and Refining Limited at December 31, 1964 comprised 
capital stock of $28,000 and surplus of $228,000. 



AUDITOR GENERAL'S REPORT 145 

The following is a comparative summary of the net expenses of the Company for the 
past two years: 

Year ended December 31 



Salaries, wages and contributions to employees' pension plan $ 231 ,000 

Repairs 

Supplies 

Depreciation 

Hangar expense 

Insurance 

Other 



1964 


1963 


231,000 


.$ 187,000 


173,000 


167,000 


150,000 


153,000 


62,000 


49,000 


53,000 


44,000 


36,000 


35,000 


35,000 


41,000 



Total expenses 740,000 676,000 

Less: Miscellaneous income 23,000 5,000 



Net expenses $ 717,000 $ 671,000 



The net expenses for 1964 were recovered from Eldorado Mining and Refining Limited 
to the extent of $544,000 and from Northern Transportation Companj^ Limited to the 
extent of $173,000. 

198. Eldorado Mining and Refining Limited. This Company was incorporated in 1945 
under the Companies Act, 1934, following expropriation in 1944 of the shares of a privately- 
owned company. The head office of the Company is in Ottawa, the Beaverlodge mine is 
near Uranium City, Saskatchewan, and the refinery and administrative offices are in Port 
Hope, Ontario. The principal functions of the Company are to produce, refine and sell 
uranium and allied products. 

The equity of the Crown in the Company at December 31, 1964 amounted to 
$52,001,000 consisting of capital stock of $6,586,000 and surplus of $45,415,000. Dividends 
of $1,500,000 were paid to the Receiver General during the year, compared with $2,000,000 
paid in the preceding year. 

In 1962 the Company contracted to sell to the United Kingdom Atomic Energy 
Authority 24,000,000 pounds of uranium concentrates between the years 1962 and 1971. 
At the same time, the Company contracted to purchase 20,917,000 pounds of uranium 
concentrates from six producers. The balance of 3,083,000 pounds is to be supplied from the 
Company's own mine. The contract provides for the deferment of payment for certain 
deliveries until the later years of the contract period. At December 31, 1964 an amount of 
$7,040,000 was due in fixed monthly instalments ending March 31, 1966 while $25,422,000 
is recoverable in equal annual instalments during the years 1971-73. 

All costs and expenses in connection with the procurement of concentrates from other 
producers are recovered and, in addition, charges are made by the Company for administer- 
ing and financing the program. At December 31, 1963 the excess of costs and expenses over 
sales of concentrates, procured from other producers, amounted to $2,990,000. During 1964 
sales exceeded costs and expenses by $2,748,000 leaving a balance of $242,000 to be recover- 
ed in 1965. 



146 AUDITOR GENERAL'S REPORT 

During 1963 the Governor in Council granted authority for entry into contracts 
between Her Majesty the Queen in right of Canada, represented by Eldorado Mining and 
Refining Limited, and certain Canadian uranium producers for the purchase of uranium 
concentrates for stockpiling. At December 31, 1964 the Company was the custodian of 
uranium concentrates thus acquired at a total cost of $24,408,000. Funds for the acquisition 
of these concentrates were provided by appropriations of the Department of Trade and 
Commerce and accordingly their cost was not included in the accounts of the Company. 

The following is a summary of income and expense for 1964, in comparison with the 
preceding year: 

Year ended December 31 
1964 1963 

Income — 

Sales of uranium concentrates, uranium metal and related 

products, and revenue from refining services $ 15,690,000 $ 24,281,000 

Expense — 

Mining, milling, refining and other expenses 5,690,000 11,694,000 

Depreciation 4, 103,000 4, 162,000 

Amortization of cost of acquiring rights to deliver concentrates 

on cancellation of contract with another producer 3,121, 000 3 , 468 , 000 

Amortization of pre-production, mine development and other 

deferred expenditures 410,000 807,000 

Scientific research 1,180,000 936,000 

14,504,000 21,067,000 

Net income from operations 1,186,000 3,214,000 

Income arising from the financing of ore procurement pro- 
gram 2,974,000 1,255,000 

Interest and other non-operating income (net) 690,000 1,214,000 

4,850,000 5,683,000 

Provision for income tax 2,400,000 2,900,000 

Net income $ 2,450,000 $ 2,783,000 



The continuing downward trend in sales volume and the adverse effect of the deferment 
of deliveries under the terms of certain contracts have resulted in a decline of $8,591,000 
in sales revenue. 

Included in the mining, milling, refining and other expenses is the write-off of obsolete 
and slow-moving stores at Beaverlodge in the amount of $202,000, making a total of 
$1,030,000 written off since 1960. 

In 1960 the Company acquired, at a cost of $19 million, the rights of another uranium 
producer to deliver concentrates to the United States Atomic Energy Commission. This 
cost has been amortized on a pro-rata basis against the production of the Beaverlodge mine 
and the balance of $3,121,000 at January 1, 1964 was written off during the year. 






AUDITOR GENERAL'S REPORT 147 

Under the provisions of the contract for the delivery of 24,000,000 pounds of uranium 
concentrates to the United Kingdom Atomic Energy Authority, the Company delivered 
7,259,000 pounds during 1964 at an excess of selling price over average cost of $3,012,000. 
After allowance for administrative costs of $38,000, a balance of $2,974,000 remained as 
income arising from the financing of the ore procurement program. 

199. Export Credits Insurance Corporation. This Corporation was established in 1944 
by the Export Credits Insurance Act, R.S., c.105, to provide insurance to Canadian 
exporters of goods and services against the risk of non-payment by foreign buyers. The 
Corporation, which has its head office in Ottawa and branches in Montreal and Toronto, is 
intended to operate on a self-sustaining basis from premiums charged on contracts of 
insurance. Where the Corporation is of the opinion that a proposed contract of insurance 
would impose upon it a liability for a term or in an amount in excess of that which it would 
normally undertake, it may seek the approval of the Governor in Council, pursuant to 
section 21 of the Act, to enter into the proposed contract of insurance. In the event of a 
loss under this section (there has been none) the moneys required to discharge the liability 
are payable from unappropriated moneys in the Consolidated Revenue Fund. An amend- 
ment to the Act in 1959 introduced section 21 A under which the Corporation may, with the 
authority of the Governor in Council, provide long-term financing for export sales of 
capital goods and services with funds available out of the Consolidated Revenue Fund. 

The Crown's equity in the Corporation at December 31, 1964 was $92,597,000 consisting 
of share capital of $5,000,000, capital surplus of $5,000,000, and an underwriting reserve of 
$9,719,000, together with advances and accrued interest totalling $72,878,000 in respect of 
long-term financing of sales agreements under section 21A of the Act. 

Export sales insured by the Corporation on its own account during 1964 totalled 
$131,000,000 on which premiums of $761,000 were earned. Export sales insured under 
section 21 of the Act totalled $215,000,000 and premiums amounted to $1,762,000 of which 
$1,322,000 was remitted to the Receiver General and $440,000 was retained by the 
Corporation in respect of expenses and overhead, in accordance with a basis authorized by 
the Minister of Trade and Commerce. At December 31, 1964 the liability of the Corporation 
under contracts of insurance issued and outstanding totalled $420,725,000 of which 
$311,497,000 was for contracts entered into under section 21 of the Act. 

At December 31, 1964, after four years of operation in the field of direct long-term 
financing of export sales of capital goods and services under the authority of section 21 A 
of the Act, the Corporation had signed agreements to finance export sales amounting to 
$212,000,000 of which $124,000,000 had been disbursed. In addition, the Corporation had 
agreed to finance $27,000,000 of prospective sales and had guaranteed or had undertaken 
to guarantee negotiable instruments totalling $13,276,000 with respect to completed sales. 
During the year the Corporation sold additional promissory notes having a face value of 
$23,000,000 which were outstanding under section 21A, to the Export Finance Corporation 
of Canada, Ltd. (a subsidiary of the Canadian chartered banks). The Corporation continues 
to be responsible for the administration of notes amounting to $46,720,000 sold in this 
manner which mature within five years, and guarantees payment of principal and interest. 



148 AUDITOR GENERAL'S REPORT 

The following is a comparative summary of operations for the past two years : 

Year ended December 31 

1964 1963 

Income — 

Premiums and fees earned $ 1,287,000 $ 1,003,000 

Expense — ■ 

Salaries and employee benefits 438,000 381,000 

Rents 39,000 36,000 

Stationery, printing and office expenses 28,000 29,000 

Travel 29,000 25,000 

Communications expense 18,000 16,000 

Other 46,000 31,000 

598,000 518,000 

689,000 485,000 

Policyholders' claims — 

Recoveries 655,000 597,000 

Payments 515,000 195,000 

140,000 402,000 

Excess of income and net recovery on policyholders' claims over 

expense 829,000 887,000 

Add: Interest on investments 636,000 774,000 

1,465,000 1,661,000 

Deduct: Provision for income tax — 796,000 

Surplus $ 1,465,000 $ 865,000 



The increase of $80,000 in expense for the year resulted mainly from an increase of 
$57,000 in salaries, of which approximately $21,000 was for additional staff taken on in 
1963 and 1964 and $36,000 was for salary increases. 

The following is a summary of transactions in respect of claims paid to policy- 
holders : 

Outstanding Claims Amounts Written Outstanding 

Type of claim Jan. 1, 1964 paid recovered off Dec. 31, 1964 

Insolvency $ 264,000 $ 36,000 $ 27,000 $ 20,000 $ 253,000 

Default 260,000 53,000 22,000 37,000 254,000 

Exchange transfer 494 , 000 426 , 000 606 , 000 (45 , 000) 359 , 000 

Other 1,000 — — — 1,000 

$ 1,019,000 $ 515,000 $ 655,000 $ 12,000 $ 867,000 



Of the amount of $867,000 shown above as outstanding at December 31, 1964, the 
Corporation anticipates making substantial recoveries, particularly in respect of those 



AUDITOR GENERAL'S REPORT 149 

claims, amounting to $359,000, which were paid because of exchange transfer difficulties 
in the buyers' countries. The amounts to be recovered will be added to income in the years 
in which recoveries are effected. 

Following an amendment to the Export Credits Insurance Act in 1964, which exempted 
the Corporation from the payment of income tax, the Corporation paid an amount of $10 
million into a special non-interest-bearing account in the name of the Corporation in the 
Consolidated Revenue Fund. This amount corresponds to the sum of the paid-in capital 
and the capital surplus of the Corporation. 

In April 1965 a further $3,976,000, corresponding to the net interest earned through 
the investment of funds equivalent to the paid-in capital and the capital surplus of the 
Corporation, was deposited in the same account. The Corporation also undertook, begin- 
ning with the year 1965, to pay to the Receiver General the excess, if any, of premiums 
retained in respect of policies written under section 21 of the Act and of interest retained 
on section 21 A long-term financing operations, over the calculated administrative costs 
and overhead attributable to these operations. 

In our report under section 87 of the Financial Administration Act on the examination 
of the accounts of the Corporation for the year ended December 31, 1964, reference was 
made to the decision of the Board of Directors to transfer the total of the Corporation's 
Earned Surplus account, together with the excess of income over expense for the year 
ended December 31, 1964, to the Underwriting Reserve and to show the Reserve on the 
balance sheet of the Corporation as a liability reserve. We stated that, in our opinion, 
this Reserve is general in nature and at December 31, 1964 constituted part of the share- 
holders' equity in the Corporation and should have been included in the capital or share- 
holders' equity section of the balance sheet. 

We have been informed by the Corporation that further consideration will be given 
to this matter. 

200. Farm Credit Corporation. This Corporation was established in 1959 by the Farm 
Credit Act, 1959, c. 43, to succeed the Canadian Farm Loan Board which had operated 
since 1929. The purpose of the Corporation is to make, administer and supervise long-term 
mortgage loans to farmers. The Corporation also administers the Farm Machinery 
Syndicates Credit Act, 1964, c. 29, which authorizes the making of loans to qualified 
syndicates of three or more farmers to purchase farm machinery for their co-operative use. 
The head office of the Corporation is in Ottawa and there are 7 branch and 126 field offices 
throughout Canada. 

The Government of Canada paid a further $3,650,000 into the capital of the Corpora- 
tion during the year and advanced an additional $98,818,000 (net) by way of loans. At 
March 31, 1965 the equity of the Government in the Corporation amounted to $456,061,000, 
comprising: capital, $17,000,000; loans, $424,341,000 (of which $105,000 was in respect of 
the Farm Machinery Syndicates Credit Act); accrued interest on loans, $13,075,000; 
reserve for losses under the Farm Credit Act, $1,644,000; and retained earnings from 
operations of the Farm Machinery Syndicates Credit Act, $1,000. 

During the year, 9,845 loans were made to farmers to a total of $139,751,000 compared 
with 7,802 loans amounting to $96,316,000 made in the previous year. Repayments of 



150 AUDITOR GENERAL'S REPORT 

principal amounted to $37,359,000, an increase of $11,933,000 over repayments in the 
previous year. Loans outstanding at March 31, 1965, with accrued interest, amounted to 
$455,905,000 compared with $350,357,000 at March 31, 1964. At the year-end $54,000 had 
been loaned under the Farm Machinery Syndicates Credit Act, which came into force on 
December 11, 1964. 

The following is a comparative summary of the income and expense of the Corporation 
for the last two years: 

Year ended March 31 

1965 1964 

Operations under the Farm Credit Act 

Income — 

Interest earnings $ 19,786,000 $ 15,120,000 

Deduct: Interest on loans from the Government of Canada 17,169,000 13,188,000 

2,617,000 1,932,000 

Appraisal, supervision and legal fees 828 , 000 521 , 000 

3,445,000 2,453,000 

Expense — 

Salaries and employee benefits 3, 116,000 2,764,000 

Travel 327,000 310,000 

Office accommodation 222,000 217,000 

Postage, express, telephone and telegraph 94,000 84,000 

Printing, stationery and office supplies 93,000 72,000 

Rental and maintenance of office equipment 55,000 27,000 

Fees and expenses of part-time appraisers 15,000 18,000 

Management consultants' fees 12,000 16,000 

Depreciation 36,000 36,000 

Other 55,000 28,000 

4,025,000 3,572,000 
Less: Portion allocated to operations under the Farm Machinery 

Syndicates Credit Act 50,000 — 

3,975,000 3,572,000 

Net operating loss, provided for by parliamentary appropriation . . $ 530 , 000 $ 1,119, 000 



Operations under the Farm Machinery Syndicates Credit Act 
for the period December 11, 1964 to March 31, 1965 

Income — 

Interest (net) and service charges $ 1 , 000 

Amount appropriated by Parliament for carrying out the purposes of 

this Act 50,000 

51,000 
Portion of Corporation's expenses allocated to operations under this Act. . 50,000 

Excess of income over expense transferred to retained earnings $ 1 , 000 

The increase of $403,000 in expense for the year was due largely to the continued 
growth in lending activity and the consequent expansion of the Corporation which 



AUDITOR GENERAL'S REPORT 151 

resulted in an increase in staff from 183 at March 31, 1960 to 498 at March 31, 1964 
and 529 at March 31, 1965. During the same period the number and principal of loans 
outstanding increased from 28,000 and $117,000,000 to 47,000 and $444,000,000. 

In our report under section 87 of the Financial Administration Act on the examination 
of the accounts of the Corporation for the year ended March 31, 1965, reference was made 
to the reduction in the Reserve for Losses during the past five years, due in part to the 
statutory obligation placed on the Corporation to lend money at a fixed rate, as follows : 

Section 15 of the Farm Credit Act requires the Corporation to establish a Reserve out 
of which may be paid "any losses sustained by the Corporation in the conduct of its business". 
The section further provides that the Corporation shall credit its net earnings each year 
to this Reserve until the amount of the Reserve equals the capital of the Corporation. At 
March 31, 1965 the capital of the Corporation amounted to $17,000,000 while the Reserve 
amounted to $1,644,527, having been reduced by $20,813 due to losses on loans realized 
during the past year. 

As previously pointed out, the statutory lending rate of 5% on loans to farmers has not 
provided sufficient income to cover the interest paid on borrowings from the Government of 
Canada and administrative expenses applicable to loans made at this rate. The annual excess 
of expense over income is now being met each year by parliamentary appropriation. The 
operating loss of $529,694 for the year ended March 31, 1965, compared with a loss of 
$1,118,796 for the previous year, was recovered from Department of Agriculture Vote 90d. 

While continuation of the policy of providing a parliamentary appropriation to cover 
the annual operating loss of the Corporation will prevent further depletion of the Reserve 
by such losses, no provision has been made for the building up of the Reserve to an amount 
equivalent to the capital of the Corporation as is contemplated by the Farm Credit Act. 

The amendment to the Farm Credit Act which was assented to on June 18, 1964 
increased the amount that a single farming enterprise may borrow under Part II of the 
Act from $20,000 to $40,000 and under Part III of the Act from $27,500 to $55,000. The 
interest rate of 5% per annum remains unchanged on amounts loaned by the Corporation 
up to the previously existing limits of $20,000 and $27,500, but the interest rate to be 
charged on moneys loaned in excess of these amounts may from time to time be prescribed 
by the Corporation with the approval of the Governor in Council "which rate shall be 
sufficient, if the whole amount of the loan were to be loaned by the Corporation at that 
rate, to return to the Corporation an amount equal to the cost to the Corporation of any 
money borrowed for the purposes of the loan and the expenses of the Corporation in respect 
thereof, including a reasonable reserve against loss". 

On June 25, 1964 an interest rate of 6|% per annum was approved for moneys loaned 
under the new increased limits. Since this rate applies only to the portion of any loan in 
excess of $20,000 or $27,500, as the case may be, the operations of the Corporation will 
continue to result in an annual operating loss. 

201. The National Battlefields Commission. This Commission, which was constituted 
by the National Battlefields at Quebec Act, 1908, c. 57, with the objects of acquiring 
and preserving the historic battlefields at Quebec, comprises nine members, seven of 
whom are appointed by the Governor in Council and one each by the governments of the 
provinces of Ontario and Quebec. 



152 AUDITOR GENERAL'S REPORT 

Prior to 1958 the Commission was financed by statutory grants made from time to 
time under the constituting Act, but since then it has been financed by annual parlia- 
mentary appropriations. At March 31, 1965 the proprietary equity of the Crown in the 
Commission amounted to $1,504,000. 

The following is a summary of the expenses of the Commission for the year compared 
with those of the preceding year : 

Year ended March 31 



1965 1964 



Salaries, wages and related expenses $ 164,000 $ 154,000 

Policing services 31,000 20,000 

Repairs of roads, driveways and buildings 25,000 18,000 

Light, heat, power, gasoline and oil 15,000 11,000 

Operating supplies and nursery stock 16 , 000 9 , 000 

Other expenses 9,000 7,000 



260,000 219,000 

Reconstruction of Martello Tower No. 4 42,000 — 

Capital outlays 25,000 19,000 



$ 327,000 $ 238,000 



The expenses of the Commission were financed to the extent of $315,000 by parlia- 
mentary appropriations, based on the approved budget of the Commission for the fiscal 
year 1964-65, $2,000 from miscellaneous income, and the balance of $10,000 by increasing 
outstanding current obligations. 

In the approved budget it was stipulated that expenditure in respect of each item 
detailed therein might exceed the amount allotted by 10% without further approval, 
provided that the total expenditure did not exceed $315,000. The accounts of the Com- 
mission showed that expenditure in respect of four of the items in the budget exceeded 
the limit prescribed by more than 10% in each case, and that the total expense for the 
year, which amounted to $327,000, exceeded the budget total by $12,000. 

Funds contributed by provincial governments and others in the years following the 
establishment of the Commission in 1908, which may be used only for the acquisition of 
land with prior parliamentary approval, amounted to $32,000 at March 31, 1965. The 
only changes in the balance of this account for many years have been the increases arising 
out of investment earnings. 

The Balance Sheet of the Commission as at March 31, 1965 has not been approved 
by the Chairman as in previous years. The Chairman, who has since resigned, advised 
us by letter on June 18, 1965 that he was withholding his signature because he disapproved 
of the year's deficit. 

202. National Capital Commission. This Commission was established by the Na- 
tional Capital Act, 1958, c. 37, to succeed the Federal District Commission which had 
been established in 1927 as the successor to the Ottawa Improvement Commission, 1899. 









AUDITOR GENERAL'S REPORT 153 

The objects and purposes of the Commission are "to prepare plans for and assist in 
the development, conservation and improvement of the National Capital Region in order 
that the nature and character of the seat of the Government of Canada may be in accord- 
ance with its national significance". Subject to the control exercised by the Governor in 
Council, the Commission has wide powers including those relating to: acquisition and 
development of property; construction and maintenance of parks, roads, bridges, buildings 
and other works; undertaking joint projects with municipalities or making grants to 
municipalities; construction and operation of concessions; and the administration of 
historic buildings and sites. The Commission consists of 20 members appointed by the 
Governor in Council from across Canada. 

The proprietary interest of the Government of Canada in the Commission, including 
loans, at March 31, 1965 totalled $115,266,000 represented by: cash, $1,259,000; inven- 
tories of tools, equipment and supplies, $204,000; and cost of capital assets, $113,803,000. 

The Commission's activities are financed by annual parliamentary appropriations, 
withdrawals from the National Capital Fund and loans from the Government of Canada, 
along with incidental revenues from rentals, etc. A summary of the expenditure and other 
transactions for the past two years is as follows : 

Year ended March 31 

1965 1964 

Operation and maintenance of parks, parkways and grounds adjoining 
Government buildings at Ottawa and Hull, maintenance of other 
properties and general administration 

Expenditures $ 3,628,000 $ 2,892,000 

Provided for by: 

Parliamentary appropriations $ 3,390,000 $ 2,668,000 

Revenue 238,000 224,000 

$ 3,628,000 $ 2,892,000 

National Capital Fund transactions 

Balance of Fund in hands of Commission at beginning of year ... $ 986 , 000 $ — 

Amount due from National Capital Fund at beginning of year. . . — (258,000) 
Add: 

Amounts drawn from Fund 10,500,000 7,850,000 

Proceeds from sales of property 425,000 177,000 

11,911,000 7,769,000 

Deduct: 

Capital outlays for parks, parkways, railway lines and struc- 
tures, etc 7,181,000 3,960,000 

Repayment of loans to acquire property now in use — Queensway 

(1964— Ottawa River Parkway) 2,529,000 61 ,000 

Maintenance of land and rehabilitation works 112, 000 90 , 000 

Contributions to the City of Ottawa and other municipalities 
towards the cost of constructing roads, bridges, sewers, etc.. . 339,000 2,672,000 

10,161,000 6,783,000 

Balance of Fund in hands of Commission at end of year $ 1,750,000 $ 986,000 



154 AUDITOR GENERAL'S REPORT 

Year ended March 31 

1965 1964 

Acquisition of property in the National Capital Region through loans 
provided by the Government of Canada 

Unexpended balance of loans at beginning of year $ 383 , 000 $ 1 , 230 , 000 

Add: 

Government of Canada loans (net) 6,865,000 12,081,000 

Amount recovered from the National Capital Fund with respect 

to properties put into use 2,529,000 61,000 

Proceeds from sales of property 1 ,906,000 58,000 

11,683,000 13,430,000 

Deduct: 

Expenditures for acquisition of property 10,424,000 13,047,000 

Unexpended balance of loans at end of year $ 1 , 259 , 000 $ 383 , 000 

Interest charges on outstanding Government of Canada loans 

Interest on loans $ 2,858,000 $ 2,319,000 

Provided for by: 

Parliamentary appropriations $ 2,464,000 $ 1 ,990,000 

Net revenue from rentals of property and interest earnings .... 394 , 000 329 , 000 



$ 2,858,000 $ 2,319,000 



The expenditures incurred in the various activities of the Commission, as summarized 
above, totalled $27,071,000 during the year compared with $25,041,000 in the preceding 
year and were financed as follows : 

Year ended March 31 



1965 1964 



Parliamentary appropriations S 15,590,000 $ 11,264,000 

Loans to the Commission 10,424,000 13,047,000 

Proceeds from sales of property 425,000 177,000 

Revenues of the Commission 632,000 553,000 



$ 27,071,000 $ 25,041,000 



The Public Accounts Committee gave further consideration to the practice of re- 
quiring the National Capital Commission to seek parliamentary appropriations to enable 
it to pay interest on loans obtained from the Minister of Finance for the purchase of! 
properties. In its Sixth Report 1964 (see Appendix 1, item 27) the Committee again 
requested the Department of Finance to review the existing practice with the National 
Capital Commission with a view to placing the financing of the Commission on a more 
realistic basis. Loans from the Minister of Finance totalled $59,851,000 at March 31, 1965. 
Interest charges in 1964-65 amounted to $2,858,000 of which $2,464,000 was provided by 
Department of Public Works appropriations for the National Capital Commission, Votes 
60 and 60d (see paragraph 167 of this Report). 






AUDITOR GENERAL'S REPORT 155 

203. National Harbours Board. This Board was established in 1936 by the National 
Harbours Board Act, R.S., c. 187, and has jurisdiction over the harbours of Halifax, Saint 
John, Chicoutimi, Quebec, Trois-Rivieres, Montreal (including the Jacques Cartier and 
Champlain Bridges), Churchill and Vancouver, together with the grain elevators at 
Prescott and Port Colborne. The head office of the Board is in Ottawa. 

The proprietary equity of the Government of Canada at December 31, 1964 totalled 
$493,406,000 comprising: equity represented by the cost of assets transferred to the Board 
on its establishment and subsequently, $59,750,000; loans and advances, $320,094,000; 
interest in arrears on loans and advances, $86,204,000; and reserves, $109,871,000; less 
the accumulated deficit of $82,513,000. 

During the year there was an increase of $3,308,000 in outstanding loans and advances 
and $7,645,000 in interest in arrears. In previous Reports we observed that there was little 
prospect of the Board being in a position to meet its principal and interest obligations 
and recommended the reconstitution of the financial structure of the Board. Since 1964, 
officers of the Board, along with officers of the Department of Finance, have been consider- 
ing proposals with a view to eliminating the Board's indebtedness to the extent that loans 
and interest in arrears are considered to be in excess of the anticipated ability of the 
Board to repay. 

Current assets of the Board included the sum of $243,000 due from the Quebec 
Natural Gas Corporation for rental charges by the Board for the easement for a 20-inch 
natural gas pipeline over the Jacques Cartier Bridge. The amount represents $185,000 
outstanding on December 31, 1963 plus $58,000 charged for 1964. In previous Reports we 
have noted that authority for the installation of the pipeline was granted by the Board 
on May 1, 1959 subject to later negotiation of the annual rental rate but that the Corpor- 
ation subsequently would not agree to the rate proposed and requested the Board to 
consider one that was little more than nominal. The case was referred to the Department 
of Justice late in 1964. 

The Jacques Cartier Bridge, until revocation of tolls on June 1, 1962, was operated 
under a tri-partite agreement which required the City of Montreal and the Province of 
Quebec to pay to the Board one-third of any annual deficit arising from the operations of 
the Bridge to a maximum of $150,000 each. Since 1944 the Province has refused to make 
the required contributions and at the end of 1949 its accumulated indebtedness amounted 
to $744,425. From 1950 until revocation of tolls the Bridge did not incur an operating 
deficit and the accounts of the Board continue to show this amount as due from the 
Province. In our 1963 and 1964 Reports we observed that the settlement of this claim and 
the transfer of this Bridge to the Province had been the subject of negotiations between 
the Board and the Province. No further action has been taken on this matter. 

Repeated reference has been made in previous Reports to the dispute between the 

Board and the Canadian Pacific Railway regarding the ownership of certain areas of Coal 

Harbour, Vancouver. Title to the areas involved has been in dispute since 1880 and, pending 

; settlement, the C.P.R. collects rental and other revenue from certain areas in its possession 

while the Board does likewise in respect of certain areas which the Board has occupied. 



156 AUDITOR GENERAL'S REPORT 

At December 31, 1964 the Board held $167,000 in trust while the C.P.R. held $249,000. 
During the year, the Board again referred the case to the Attorney General of Canada 
and, at the year-end, was in the process of securing information requested by him. 

The following is a summary of the operations of the harbours and elevators and of 
the bridges for the past two years : 

Year ended December 31 



1964 1963 

Harbours and Elevators 



Operating income — 

Harbours $ 4,597,000 $ 3,237,000 

Wharves and piers 10,474,000 9,690,000 

Grain elevator systems 9,423,000 9,074,000 

Cold storage systems 1,315,000 1,275,000 

Permanent sheds 2,206,000 2,037,000 

Railway systems 863,000 748,000 

Miscellaneous services 1,224,000 1,227,000 



30,102,000 27,288,000 



Operating and administrative expenses — 

Harbours 4,411,000 3,687,000 

Wharves and piers 946,000 1,121,000 

Grain elevator systems 6,349,000 6,010,000 

Cold storage systems 1,144,000 1,130,000 

Permanent sheds 1 ,438,000 1,382,000 

Railway systems 1,063,000 1,087,000 

Miscellaneous services 1,344,000 1,318,000 

Administrative expenses 2,558,000 2,285,000 



19,253,000 18,020,000 



Net operating income 10,849,000 9,268,000 

Other income — 

Income from investments 2,491 ,000 2,307,000 

Miscellaneous 338,000 147,000 



13,678,000 11,722,000 



Special charges — 

Provision for interest on loans and advances 9,392,000 9, 157,000 

Provision for replacement of capital assets 4,803,000 4,519,000 

Other 464,000 374,000 



14,659,000 14,050,000 



Netloss $ 981,000 $ 2,328,000 



AUDITOR GENERAL'S REPORT 



157 



Year ended December 31 



1964 



1963 



Bridges 

Operating income — ■ 

Jacques Cartier Bridge 

Champlain Bridge 

Operating expenses — 

Jacques Cartier Bridge 

Champlain Bridge 

Net operating income (loss) 

Special charges — 

Provision for interest on loans and advances 

Provision for replacement of capital assets 

Settlement of claim by lessor of toll-collecting equipment. 
Other 

Net loss 



$ 159,000 
625,000 


$ 152,000 
448,000 


784,000 


600,000 


294,000 
408,000 


255,000 
426,000 


702,000 


681,000 


82,000 


( 81,000] 


1,620,000 

508,000 

279,000 

72,000 


1,521,000 
508,000 

68,000 


2,479,000 


2,097,000 


$ 2,397,000 


•f 2,178,000 



Tariff rates were increased during 1964 and waterborne cargo-tonnage surpassed that 
of 1963 by 8%. As a result, with the exception of the Prescott Elevator, revenue increased 
at all locations in 1964 over the preceding year. The increase in cargo-tonnage is mainly due 
to: increases in deliveries of wheat to Russia and China aggregating 2,259,000 tons; imports 
of crude oil which increased by 423,000 tons at Montreal and by 300,000 tons at Halifax; 
and motor vehicle imports from the United Kingdom, Germany and other countries which 
increased by 60% at Vancouver and 53% at Saint John. 

In previous years the Prescott Elevator was used extensively for storing grains for 
short periods while awaiting arrival of ocean-going vessels in lower St. Lawrence River ports. 
This trans-shipment business has now almost disappeared with the completion of large 
storage elevators and modern loading facilities at Montreal, Sorel and Baie Comeau. As 
a result, the quantity of grains handled declined from 52,359,000 bushels in 1963 to 
31,809,000 in 1964 which largely accounts for a decrease of $145,000 in revenue from 
this elevator. 

All tolls and charges in respect of passage of motor vehicles over the Jacques Cartier 
Bridge were revoked as of June 1, 1962. In 1964 there was, however, a small increase in 
the revenue derived from rentals and easements. Traffic across the Champlain Bridge in 
1964 totalled 3,914,000 vehicles, an increase of 230,000 over 1963. 

The increases in operating expenses were largely due to greater cargo-tonnage handled, 
la addition, certain expenditures were incurred during 1964 which had no counterpart in 



158 AUDITOR GENERAL'S REPORT 

1963. In Halifax, $72,000 was spent on repairs to the grain gallery and on a special engineer- 
ing survey of the port. In Quebec, $30,000 was spent on major repairs to the grain elevator 
and the Canadian Corps of Commissionaires were retained to provide police service at a 
cost of $24,000. In Montreal, police salaries were up $29,000 and railway tracks were 
renewed at a cost of $57,000. There was, however, a reduction of $138,000 in railway 
maintenance at. this port as a result of a reduction in the number of work gangs from three 
to two. In Vancouver, the roof of one storage shed and the walls of another were renewed 
and a street was repaved at a total cost of $48,000. 

The increase in administrative expenses was principally due to a general salary 
increase granted in 1964. In a number of classifications the new salary scales were made 
retroactive to October 1, 1963, following the pattern of the revised salary scales of the 
public service. In addition, the head office of the Board was moved to new quarters during 
1964 which resulted in greater rental charges. Previously the Board shared space with the 
Department of Transport but was required to vacate due to additional needs of the 
Department. 

Three items of expenditure merit observation. Under the terms of an agreement dated 
September 7, 1961, the Board leased certain automatic toll collecting equipment for use 
on the Jacques Cartier Bridge. The lease was for a period of five years at a daily rental 
of $276. On June 1, 1962, nine months after the equipment was installed, all tolls applicable 
to the bridge were abolished by the Governor in Council. The toll collecting equipment was 
then removed and no further payments were made under the lease. The company that 
had installed the equipment claimed damages in excess of $500,000 and was prepared 
to refer its claim to a court of law for adjudication. It was the opinion of the Board's 
legal advisers that the company's claim would not be sustained by the courts. However, 
the Board decided that the company should be compensated. The approval of the Governor 
in Council was then obtained for an ex gratia payment of $279,000 in settlement of the 
company's claim. 

Ex gratia payments totalling $32,000 were made, with the approval of the Governor 
in Council, to owners of property adjacent to the Champlain Bridge due to land devaluation 
resulting from construction of the Bridge. 

During the initial stages in the unloading of a grain vessel only mechanical devices 
are used. This period is referred to as "dip time" and not until one, two or three hours 
later — depending on the size of the vessel — are the services of riggers, rope pullers, scoopers 
and hold foremen required. We observed that the collective bargaining agreement between 
the Board and the labour unions at Port Colborne and Prescott provides for payment of 
these workers during dip time. During the year 120 vessels were unloaded at these locations 
and the workers were paid approximately $20,000 during dip time for which the Board 
received no benefit. 

204. Northern Canada Power Commission. This CommissioD, which was established 
in 1948 and operates under the Northern Canada Power Commission Act, 1956, c. 42, 
consists of three members appointed by the Governor in Council and has its head office 
in Ottawa. The objects of the Commission are to construct and operate electric power 






i 



AUDITOR GENERAL'S REPORT 159 

plants and to supply power to mines and other users in the Northwest Territories and the 
Yukon Territory and, with the approval of the Governor in Council, in any other part 
of Canada. Hydro-electric plants are operated at Snare River, N.W.T., and at Mayo River 
and Whitehorse Rapids, Y.T., and thermal-electric stations are in operation at Fort 
Resolution, Fort Smith, Fort Simpson, Inuvik, Fort McPherson, Aklavik and Frobisher 
Bay, N.W.T., Field, B.C., and Moose Factory, Ontario. A hydro-electric power plant on the 
Taltson River, in the vicinity of Great Slave Lake, has been under construction since 1963. 

The proprietary equity of the Government of Canada in the Commission, at the close 
of the past two fiscal years, follows: 

March 31 



1965 1964 

Advances, including $50,000 for investigation of projects $ 28, 142,000 $ 22,463,000 

Equity represented by cost of: 

Central heating, water and sewerage and fire alarm systems at 

Inuvik, N.W.T., financed by parliamentary appropriation. . . 7,003,000 7,003,000 
Extension, expansion and improvements of capital assets fin- 
anced from earnings 315,000 297,000 

Reserve for contingencies 2,020,000 1,797,000 

Earned surplus 1 ,274,000 988,000 



$ 38,754,000 $ 32,548,000 



The Commission also acts as agent for the Government of Canada in respect of loans 
made under the Atlantic Provinces Power Development Act, 1957-58, c. 25, and, in this 
capacity, made advances to the provincial power commissions of Nova Scotia, New- 
foundland and New Brunswick. Outstanding loans totalled $32,158,000. 

The following is a summary of the income and expense of the Commission for the 
past two years : 

Year ended March 31 

1965 1964 

Income — 

Sales of power $ 3,111,000 $ 2,883,000 

Income arising from construction, maintenance and operation of 

facilities for government departments and others 966 , 000 689 , 000 

Sales of heat 734,000 412,000 

Miscellaneous 205,000 171 ,000 

5,016,000 4,155,000 

Expense — 

Operating and maintenance 2 , 887 , 000 2 , 252 , 000 

Administrative 301 ,000 244,000 

Interest on advances from the Government of Canada 751 ,000 749,000 

Depreciation (equivalent to repayment of principal of advances 

from the Government of Canada) 549,000 521,000 

4,488,000 3,766,000 

Net income $ 528,000 $ 389,000 



160 AUDITOR GENERAL'S REPORT 

Although rates for electric power were reduced at three locations during 1964-65 and 
at another late in the preceding year, greater consumer demand increased the revenue 
from this source. In addition, the Commission took over the operation and maintenance of 
the power plant at Moose Factory and the heating plant, water-treatment plant and other 
facilities at Frobisher Bay. Income arising from maintenance and operation of these 
facilities amounted to $265,000; sales of power to $92,000; and sales of heat to $274,000. 

A physical inventory of the central heating, water and sewerage and fire alarm systems 
at Inuvik, N.W.T., which was in progress at the end of the previous year, is nearing 
completion. These assets have a cost in excess of $7 million and we were informed that 
determination of the costs of the various classifications of capital assets comprising this 
total will be available before March 31, 1966. 

In the audit we found certain irregularities with respect to the collection of accounts 
receivable at Inuvik, N.W.T. A detailed examination was made at the site as a result of 
which it was determined that the cashier had withheld some $650 which he had concealed 
by manipulation of the accounts. The employee admitted the defalcation and, after making 
restitution, submitted his resignation. 

205. Northern Ontario Pipe Line Crown Corporation. This Corporation was established 
by the Northern Ontario Pipe Line Crown Corporation Act, 1956, c. 10, for the purpose 
of constructing the Northern Ontario section of the all-Canadian natural gas pipe line 
and leasing it (subject to approval by the Governor in Council) to Trans-Canada Pipe 
Lines Limited, with an option to purchase. 

In due course the pipe line was constructed and leased with an option to purchase. 
The option was exercised and sale of the Northern Ontario section of the all-Canadian 
natural gas pipe line to Trans-Canada Pipe Lines Limited was completed on May 29, 1963. 
The purchaser assumed responsibility for the negotiation and settlement of all claims 
then outstanding and of any other claims which might arise in the future. Upon receipt of 
payment the Corporation discharged its liability to the Government of Canada for out- 
standing loans and interest accrued thereon, and was left with a surplus of $694,000 of 
which $690,000 remained on deposit with the Receiver General at the close of the Corpor- 
ation's financial year on December 31, 1964. 

The Corporation is presently considering the necessary steps to have its affairs wound 
up. 

206. Northern Transportation Company Limited. This Company is a wholly-owned 
subsidiary of Eldorado Mining and Refining Limited. Northern Transportation Company 
(1947) Limited was incorporated as a private company by letters patent dated November 
27, 1947 under the provisions of the Companies Act, 1934, to take over the business of a 
predecessor company which had been incorporated under a Province of Alberta charter 
in 1934 and whose shares had been acquired when the capital stock of Eldorado Mining 
and Refining Limited was expropriated by the Government in 1944. The corporate name 



AUDITOR GENERAL'S REPORT 161 

was changed to Northern Transportation Company Limited by supplementary letters 
patent dated August 19, 1952. 

The Company is authorized by its letters patent to carry on a general transportation 
business by land and water throughout Canada and elsewhere. Although the head office 
of the Company is in Ottawa, administrative headquarters are in Edmonton and activities 
have been almost wholly confined to the Mackenzie River water system and the western 
Arctic. 

The equity of Eldorado Mining and Refining Limited at December 31, 1964 was 
$6,949,000 comprising capital stock of $152,000, a reserve for insurance of $1,250,000 and 
surplus of $5,547,000. 

The following is a comparative summary of the operations of the Company for the 
last two years: 

Year ended December 31 
1964 1963 

Income — 

Freight earnings $ 3,074,000 $ 2,809,000 

Expense — 

Operations and maintenance : 

Salaries and wages 871 ,000 782,000 

Repairs and maintenance 411, 000 325 , 000 

Depreciation 222,000 479,000 

Fuels and lubricants 179,000 161 ,000 

Messing expense 136,000 129,000 

Other 171,000 151,000 

1,990,000 2,027,000 

Administrative 265,000 245,000 

2,255,000 2,272,000 

Net income from operations 819,000 537,000 

Miscellaneous income 170,000 173,000 

989,000 710,000 

Provision for income tax 472 , 000 439 , 000 

Net income $ 517,000 $ 271 ,000 



Freight earnings increased by $265,000 or 9.4% over the preceding year. The addi- 
tional revenue was derived mainly from the transportation of large quantities of supplies 
to the Great Canadian Oil Sands project and oil drilling equipment to Alaska and sites 
along the Mackenzie River. 



162 AUDITOR GENERAL'S REPORT 

Operations and maintenance expense, excluding depreciation, increased by $220,000 
due to the larger volume of freight handled which required the services of an additional tug. 
There was a reduction of $257,000 in the charge for depreciation as a result of three tugs 
and twenty-one barges having become fully depreciated by the end of 1963. 

207. Park Steamship Company Limited. This Company was incorporated in 1942 under 
the Companies Act, 1934, for the purpose of supervising the operation of Crown-owned 
cargo vessels. The "Park Fleet" was sold in 1946-47 and since then the activities of the 
Company have been confined to the settlement of occasional claims for compensation by 
seamen for injuries sustained during previous service. These activities have been performed 
by the staff of the Canadian Maritime Commission. 

Last year we observed that no claims for compensation had been received during the 
previous two years and suggested that the Company's charter be surrendered. It is now 
observed that on January 6, 1965 the Governor in Council authorized the Company to be 
wound up and the Crown to assume the liability for possible claims. 

208. Polymer Corporation Limited and subsidiary companies. Polymer Corporation 
Limited was incorporated in 1942 under the Companies Act, 1934, pursuant to the provi- 
sions of section 6 of the Department of Munitions and Supply Act, 1939, c.3. The Company, 
with its head office in Sarnia, Ontario, produces synthetic rubbers and chemicals. At 
December 31, 1964 there were three wholly-owned subsidiary companies, S.A. Polysar 
Belgium N.V., Polysar Nederland N.V., and Polysar International S.A., and one subsi- 
diary, Polymer Corporation (SAF), in which Polymer held a 95% equity. 

The equity of the Crown in Polymer Corporation Limited and its subsidiary com- 
panies at December 31, 1964 amounted to $90,442,000, consisting of capital stock of 
$30,000,000 and retained earnings of $60,442,000. During the year dividends of $4,000,000 
were paid to the Receiver General, compared with $3,250,000 in the previous year. 

The Company is continuing to expand its participation in synthetic rubber projects 
in Mexico and South Africa. At the year-end, its investment as a minority shareholder in 
the capital stock of the companies responsible for these projects amounted to $2,784,000 
compared with an investment of $220,000 at the end of the previous year. 

Net additions to fixed assets during the year amounted to $4,970,000. In Sarnia, 
additional real estate was acquired, latex producing facilities were enlarged, and modifica- 
tions were made to the resin facilities. In France and Belgium, improvements were made 
to production facilities. The Company estimates that $14,236,000 will be spent for the 
acquisition of capital assets during the year ended December 31, 1965. 

During the year the Company borrowed U.S. $5,000,000 ($5,400,000), repayable 
1969-73, and B.Fr. 100,000,000 ($2,162,000), repayable 1969-77, being the balance of a 
loan negotiated in the previous year. 






AUDITOR GENERAL'S REPORT 163 

The following is a summary of the operations of the Company and its subsidiaries for 
the past two years : 

Year ended December 31 



1964 1963 



Sales $ 113,864,000 $ 97,460,000 

Other income 427,000 346,000 



114,291,000 97,806,000 



Cost of sales 92,288,000 76,576,000 

Selling, administrative and research expenses 8,268,000 6,688,000 



100,556,000 83,264,000 



Net income before provision for income tax 13,735,000 14,542,000 

Provision for income tax 4,293,000 5,480,000 



Net income before minority shareholder's interest 9,442,000 9,062,000 

Minority shareholder's interest 8,000 76,000 



Net income $ 9,450,000 $ 9,138,000 



The increase of $16,404,000 in sales was achieved under highly competitive marketing 
conditions and an increasing incidence of protective measures taken by other countries. 
The increases of $15,712,000 in cost of sales and $1,580,000 in selling, administrative and 
research expenses were mainly attributable to the larger sales volume and the introduction 
of new products, the initial costs of which were comparatively high. In computing taxable 
income for the years 1961 to 1964 inclusive, the Company took advantage of capital cost 
allowances permitted under the Income Tax Act which were in excess of depreciation 
charged in the accounts. The effect of this procedure was to defer payment of income tax 
totalling $3,870,000 until future years when depreciation charges may be in excess of 
capital cost allowances. 

209. The St. Lawrence Seaway Authority. Established by the St. Lawrence Seaway 
Authority Act, R.S., c.242, the Authority maintains and operates the Canadian section of 
the 27-foot deep waterway between the Port of Montreal and Lake Erie. The section of 
the Seaway in the United States is operated by the Saint Lawrence Seaway Development 
Corporation. In accordance with an agreement made in 1959 between Canada and the 
United States, revenues from tolls are divided between the two Seaway entities in propor- 
tion to their annual costs of operation and maintenance, interest charges and repayment 
of loans. 

The Authority also operates non-toll canals at Lachine, Cornwall and Sault Ste. Marie, 
the net operating cost being provided for by annual parliamentary appropriations. 

The Authority is a corporation consisting of a president and two other members. Its 
head office is at Ottawa, with operating headquarters at Cornwall and regional headquarters 
at St. Lambert and St. Catharines. 



164 AUDITOR GENERAL'S REPORT 

The Crown's equity at December 31, 1964 is shown on the Authority's balance sheet 
as follows: 

Capital assets transferred from Department of Transport (Welland Canal) $ 130,717,000 

Loans under section 25 of the Act: 

Interest-bearing 348,500,000 

Interest-free 6,000,000 

Interest on loans — deferred 78,997,000 



564,214,000 
Deduct: Deficit 65,107,000 



$ 499,107,000 



The following is a summary of the income and expense of the Authority for the past 
two years : 

Year ended December 31 



1964 1963 



Income — 

Tolls $ 13,544,000 $ 10,730,000 

The Seaway International Bridge Corporation, Ltd. — net income 199 , 000 193 , 000 

Other 1,307,000 1 , 122,000 



15,050,000 12,045,000 



Expense — 

Operation and maintenance 7 , 895 , 000 6 , 231 , 000 

Regional administration 741 ,000 700,000 

Headquarters administration 1,274,000 1,207,000 

Engineering 833,000 577,000 



10,743,000 8,715,000 



Less portion allocated to 

Non-toll canals 355,000 462,000 

Construction 785,000 283,000 



1,140,000 745,000 



9,603,000 7,970,000 



Net operating income before providing for interest and for replace- 
ment of machinery and equipment 5,447,000 4,075,000 



Interest on loans from the Government of Canada 18,064,000 16,804,000 

Provision for replacement of machinery and equipment 865,000 961 ,000 



18,929,000 17,765,000 



Net loss $ 13,482,000 $ 13,690,000 



Tolls for the transit of the Welland Canal were suspended by the Government in July 
1962. The resulting loss in revenue for 1964 was estimated at $2,200,000. 



AUDITOR GENERAL'S REPORT 



165 



The extent by which revenues in 1964 fell short of meeting operating expenses, interest 
charges and provision for replacement of machinery and equipment in each of the two 
sections of the waterway and of the North Channel Bridge is shown in the table below. It 
should be noted that the figures do not include provision for the amortization of loans of 
$326,700,000 in respect of the Montreal-Lake Ontario Section which the Act requires to 
be paid out of earnings by December 31, 2009. However, deferred interest for the year 1961 
was reduced by payment of $5,289,000. 



Montreal- 
Lake Ontario 
Section 

Tolls $ 13,544,000 

Other income 366,000 

13,910,000 
Expenses of operation, maintenance and 

administration 3,287,000 

Net operating profit (loss) 10 , 623 , 000 

Interest on loans 14,999,000 

Provision for replacement of machinery 

and equipment 448,000 

15,447,000 

Net loss $ 4,824,000 



Welland 
Section 



941,000 



North 
Channel 
Bridge Total 



— $ 13,544,000 

199,000 1,506,000 



941,000 
6,316,000 


199,000 


15,050,000 
9,603,000 


(5,375,000) 


199,000 


5,447,000 


2,620,000 
407,000 


445,000 
10,000 


18,064,000 
865,000 


3,027,000 


455,000 


18,929,000 


$ 8,402,000 $ 


256,000 


$ 13,482,000 



On the Montreal-Lake Ontario Section, the net operating profit of $10,623,000 com- 
pares with a profit of $7,954,000 in 1963, $6,206,000 in 1962, $5,920,000 in 1961, $5,245,000 
in 1960 and $6,019,000 for the nine-month period in 1959. On the Welland Section, the net 
operating loss of $5,375,000 compares with a loss of $4,072,000 in 1963, $2,976,000 in 1962, 
$2,361,000 in 1961, $1,716,000 in 1960 and $614,000 in 1959. 

Toll revenues of the Authority for six full navigation seasons have been substantially 
less than had been anticipated by the Tolls Committees in 1958, as shown below: 



Montreal-Lake Ontario 
Section 



Anticipated 



Actual 



Welland Section 



Anticipated 



Actual 



1959 $ 9,301,000 8 7,105,000 $ 2,060,000 $ 1,224,000 

1960 10,789,000 7,156,000 2,215,000 1,326,000 

1961 12,277,000 8,080,000 2,369,000 1,462,000 

1962 13,765,000 8,914,000 2,575,000 642,000* 

1963 15,254,000 10,730,000 2,730,000 — 

1964 16,370,000 13,544,000 2,833,000 

$ 77,756,000 $ 55,535,000 $ 14,782,000 $ 4,654,000 



Tolls for the transit of the Welland Section were suspended as of July 18, 1962. 



166 AUDITOR GENERAL'S REPORT 

Under the provisions of section 16 of the St. Lawrence Seaway Authority Act, tolls are 
to be "designed to provide a revenue sufficient to defray the cost to the Authority of its 
operations", which costs are defined as including payments in respect of the interest on 
amounts borrowed by the Authority and amounts sufficient to amortize the principal of 
amounts so borrowed over a period not exceeding fifty years. The original conditions under 
which loans were made to the Authority under section 25 of the Act required the payment 
of interest only, in the first three full years of operation (through the year ending December 
31, 1962) and thereafter payment of annual amounts sufficient to amortize over a period of 
forty-seven years (or by December 31, 2009) all loans and interest thereon. The terms of 
the Authority's financing arrangements were amended in 1961, in 1963, and again in 1964 
and now call for repayment of all interest-bearing loans together with interest previously 
deferred and all other interest accrued or accruing up to December 31, 1966, together with 
current interest thereon, in forty-three equal annual instalments commencing December 
31, 1967. 

At December 31, 1964 the Authority's indebtedness to the Government of Canada 
amounted to $433,497,000, represented by interest-bearing loans of $348,500,000, interest- 
free loans of $6,000,000 and deferred interest of $78,997,000. The accumulated deficit from 
operations totalled $65,107,000, an increase of $13,482,000 for the year. 

Some measure of relief to the Authority from this financial burden, caused in part by 
the suspension of tolls on the Welland Section in 1962, was obtained when Parliament 
provided for (a) the conversion as of January 1, 1965 of $21,800,000 of the Authority's 
indebtedness pertaining to the Welland Canal to an interest-free loan, and (b) the payment 
as of January 1, 1965 to the Authority of $27,073,000 in respect of the accumulated Welland 
deficit incurred by the Authority for the calendar years 1959-1964. Future annual operating 
losses of the Welland Section are expected to be met from parliamentary appropriations. 

Following refinancing of the Welland Canal debt as at January 1, 1965, the Authority's 
indebtedness on the Montreal-Lake Ontario Section of the Seaway amounted to 
$362,832,000. If the Authority is to meet its obligations under the Act it will require average 
annual revenues of $22 million. Tolls and other income on the Montreal-Lake Ontario 
Section in 1964 amounted to only $14 million. 

The agreement made in 1959 between the Authority and the Saint Lawrence Seaway 
Development Corporation established a joint tariff of tolls for the St. Lawrence Seaway. 
The agreement provides that the division of tolls revenue derived from the operation of the 
St. Lawrence River Section of the Seaway shall be initially 71% to the Authority and 29% 
to the Corporation, provided, however, that these percentages shall be adjusted from time 
to time so that the Authority and the Corporation shall receive a proportion of the tolls 
in the ratio of their respective annual charges for operation, maintenance, interest and 
retirement of debt to their combined annual charges in respect of that portion of the Sea- 
way. 

Calculations made by the Authority in accordance with the formula contained in the 
agreement indicate that the Authority should be receiving 73% of the tolls revenue and 
the Corporation 27%. Negotiations begun in 1963 with the Corporation to effect an adjust- 






AUDITOR GENERAL'S REPORT 167 

ment in the division of this revenue have not yet been concluded. If the tolls revenue for 
the 1964 season had been shared on the basis of adjusted percentages, the Authority's 
portion would have been greater by $380,000. 

Under the 1959 agreement, the Authority and the Saint Lawrence Seaway Develop- 
ment Corporation were to report to their respective Governments by July 1, 1964 on the 
adequacy of the tariff of tolls to provide sufficient revenue to meet their operating costs 
and financial obligations. However, the Governments of Canada and the United States 
agreed to defer the date on which the entities were to report from July 1, 1964 to July 1, 
1966. The Governments agreed that the joint review of the tariff of tolls is to be continued 
and that, at the conclusion of the two-year extension, tolls proposals are to be related as 
realistically as possible to the financial requirements of the Seaway entities. 

The costs of operating and maintaining the canals and works under the administration 
of the Authority are defined in paragraph (c) of section 16 of the St. Lawrence Seaway 
Authority Act as including all operating costs of the Authority and such reserves as may 
be approved by the Minister. The Authority is of the opinion that it is not necessary to 
include depreciation as an element of operating and maintenance cost and that the amorti- 
zation over the fifty-year period of the principal of the amounts borrowed, together with 
interest, as required by subsections (a) and (b) meets the requirements of the Act. Accord- 
ingly, no provision for depreciation has been included in the costs of the year. 

Provision was made during the year for the cost of replacing machinery and equip- 
ment, including lock, bridge and building machinery and equipment, in the amount of 
$865,000. The Reserve for Replacement of Machinery and Equipment as thus augmented 
amounted to $4,822,000 at December 31, 1964. No provision has been made in the accounts 
for the replacement of buildings, lock gates and lock and bridge structures. The Authority 
considers that these Seaway works can be maintained in working condition at all times 
under its maintenance program. 

In the payment of grants in lieu of taxes, the Authority is guided by the practices of 
the Municipal Grants Division of the Department of Finance. When canal lands were 
transferred from the Department of Transport to the Authority in 1959, the Authority 
continued to pay grants in lieu of taxes on the properties transferred to it according to the 
valuations previously established and agreed upon with the municipalities by the Municipal 
Grants Division. The areas on which grants have been made include all lands under the 
Authority's control, whether firm lands, artificially flooded lands, part of the bed of the 
canal or part of naturally submerged lands. Increased assessments have been accepted 
from time to time on various canal lands based on averaged value of adjoining firm lands 
some one thousand feet on both sides. The Authority pays approximately $30,000 in annual 
grants in lieu of taxes on land covered by water at the Lake Ontario and Lake Erie entrances 
to the Welland Canal and at the St. Mary's River entrances to the Sault Ste. Marie Canal. 
In 1964 accepted valuations for submerged lands at the Welland Canal entrances totalled 
$359,612 including $292,809 for 46.7 acres (over half of which is said to be naturally sub- 
merged) at $6,270 per acre. 

In the course of our audit, a question was raised concerning the payment of grants on 
submerged lands. The members of the Authority have decided that the Authority will 



168 AUDITOR GENERAL'S REPORT 

continue to pay grants on naturally submerged lands at the valuations previously accepted, 
but that no further increase in valuation for these lands will be accepted. A decision has 
yet to be reached by the Authority with respect to other lands covered by water. 

In 1956 an arrangement was made between the Authority and three municipalities 
whereby the municipalities would contribute $250,000 towards the cost of extending the 
collector sewer which was then being constructed as the main part of the Authority's 
remedial works on the south shore of the St. Lawrence River. In 1961 two of the three 
municipalities passed official resolutions to accept the 1956 proposal and to share in the 
$250,000 contribution. The sewer extension was completed in 1963 at a cost of $480,000 
and the municipalities were billed in February 1964 for their contribution. No payment 
has been received by the Authority from the municipalities, two of which are said to be 
under trusteeship of the Province of Quebec because of financial difficulties. 

Following the initial reports of a firm of traffic management consultants who were 
engaged to study the cause of traffic congestion on the Welland Canal, plans for the imme- 
diate twinning of the single locks of the Welland Canal, which had been announced in 
connection with the amendment to the St. Lawrence Seaway Authority Act to provide 
$180,000,000 for the twinning of the locks, were revised and a decision was made to imple- 
ment those recommendations of the consultants which would reduce delays and increase 
the capacity of the canal at the earliest date. An increase of 40% in capacity is expected 
by the opening of the 1967 navigation season as a result of changes proposed by the con- 
sultants, compared to the previously announced 60% increase expected from the twinning 
of the locks. 

Order in Council P.C. 504 of March 1, 1932 provided for the construction by the 
Beauharnois Light, Heat and Power Company and transfer to the Crown of a canal suitable 
for navigation. The canal was conveyed to the Crown in 1932. 

Under the terms of a 1932 agreement drawn in accordance with the provisions of the 
Order in Council, the Company, which has since been taken over by the Quebec Hydro- 
Electric Commission, is responsible for certain operating and maintenance expenses of 1he 
canal. In 1959 this canal became part of the St. Lawrence Seaway and the Authority 
incurred costs which were recoverable from the Commission. 

In 1964, the Commission paid the Authority $32,000 to cover the maintenance costs 
for the years 1959, 1960 and 1961. As to the costs for 1962 and 1963 amounting to $23,000, 
and subsequent years, the Commission stated that, by virtue of provincial legislation passed 
in 1962, it did not feel there was any obligation on its part to cover the costs incurred by 
the Authority under the 1932 agreement. The legislation is Chapter 27 of the Statutes of 
Quebec, 1962, being an Act to dissolve Beauharnois Light, Heat and Power Company. 
Section 3 of the Act reads: 

The Quebec Hydro-Electric Commission shall carry out all the contracts legally en- 
tered into by Beauharnois Light, Heat and Power Company and still in force, and shall 
perform all the obligations thereof. 

Nothing in this section, however, shall oblige the Quebec Hydro-Electric Commission 
to carry out any contract made between Beauharnois Light, Heat and Power Company 
and Her Majesty in the right of Canada, or to perform any obligation imposed by the latter 









AUDITOR GENERAL'S REPORT 169 

We were informed that, in the opinion of the Authority, the balance remains payable 
since the Commission's obligation as successor to the Beauharnois Light, Heat and Power 
Company was not affected by the provincial Act dissolving the Company. 

Settlement of the outstanding issues with respect to the Beauharnois Canal now 
appears to rest with the federal and provincial governments. 

The following table summarizes for the past two years the expense, income and capital 
expenditures relating to the non-toll canals operated or administered by the Authority: 

Year ended December 31 



Expense — 

Operation and maintenance 

Grants in lieu of municipal taxes 

Portion of Authority's administration and engineering expenses 
applicable to non-toll canals 

Income from rentals, wharfage, etc. 

Operating deficit 1,988,000 

Capital expenditures 

Operating deficit and capital expenditures (recovered from parlia- 
mentary appropriations) 

The decrease of $1,347,000 in expense for 1964 was due mainly to the non-recurrence 
of the following items charged in 1963: (a) special grants of $473,000 to municipalities 
for assuming responsibility for part of the Welland Feeder Canal that had not been used 
for navigation since 1924; and (6) repairs to two bridges over the Lachine Canal at a cost 
of $508,000. Grants in lieu of taxes amounted to $421,000 compared with $638,000 in 1963 
when retroactive payments were made. 

In 1959 the administration of the Cornwall Canal was transferred from the Depart- 
ment of Transport to the Authority which then assumed responsibility for payment of 
grants in lieu of taxes to the City of Cornwall. In January 1965 it was discovered that a 
parcel of land expropriated in 1955 had been taken into account twice by the Authority 
in calculating the grants, with the result that the City of Cornwall had been overpaid 
$130,000 over a period of five years. Negotiations for recovery are still in progress. 

Properties transferred in 1959 from the jurisdiction of the Department of Transport 
to that of the Authority included "that portion of the Ontario-St. Lawrence Canals 
remaining in service after the flooding of the pool above the power dam at Cornwall". No 
former canal remains in service above the dam, but the Authority, for the convenience of 
the Department of Transport, administers certain properties above the dam and charges 
the expenditures incurred to the appropriation provided to the Authority for the operation 
of the non-toll canals. The major expenditure, amounting to approximately $6,000, is for 
annual grants paid to three municipalities in lieu of taxes. 



1964 




1963 




$ 1,837 


000 


$ 2,860,000 


421 


000 


638, 


000 


355 


000 


462 


000 


2,613 


000 


3,960 


000 


625 


000 


559 


000 


1,988 


000 


3,401 


000 


293 


000 


164, 


000 


$ 2,281 


000 


$ 3,565,000 



170 



AUDITOR GENERAL'S REPORT 



Capital expenditures of $293,000 include $282,000 for the purchase of a property with 
frontage on Cornwall Canal land. A reference to this expenditure is contained in paragraph 
125 of this Report. 



210. The Seaway International Bridge Corporation, Ltd. This Corporation was incor- 
porated in 1962 under the Companies Act, pursuant to section 24A of the St. Lawrence 
Seaway Authority Act, as a subsidiary of The St. Lawrence Seaway Authority for the pur- 
pose of operating and managing the international toll bridge between Cornwall, Ontario, 
and Rooseveltown, New York, on behalf of the owners, The St. Lawrence Seaway Authority 
and the Saint Lawrence Seaway Development Corporation (a United States Government 
corporation). The Seaway entities have an equal interest in the assets of the Corporation 
and each has four representatives on the Board of Directors. 

Under the terms of the bridge operating agreement between the Authority and the 
Saint Lawrence Seaway Development Corporation, the annual income from operation of 
the bridge system, after payment of operating expenses, is to be applied first towards the 
amortization of the cost of the North Channel Bridge, together with interest, after which 
the balance of the income is to be divided equally between the Seaway entities. 

The following is a summary of the Corporation's operations for the last two years : 

Year ended December 31 

1964 1963 

Income — 

Bridge tolls $ 371,000 $ 367,000 

Other 15,000 20,000 

386,000 387,000 

Expense — 

Salaries, wages and employee benefits 119,000 113,000 

Rental of toll collection machines 13,000 13,000 

Maintenance materials and services 11, 000 15 , 000 

Grant in lieu of municipal taxes 11,000 11,000 

Advertising 9,000 14,000 

Other 24,000 28,000 

187,000 194,000 

Net income— transferred to The St. Lawrence Seaway Authority. $ 199,000 $ 193,000 



The amount of $199,000 was transferred to The St. Lawrence Seaway Authority to 
be applied towards the amortization of the cost of the North Channel Bridge, together 
with interest, leaving an unamortized balance of $9,140,000 at December 31, 1964. It will 
be noted by reference to paragraph 209 that the amount transferred did not cover the 
interest charges of $445,000 for the year on the indebtedness of the Authority with respect 
to the North Channel Bridge. 






AUDITOR GENERAL'S REPORT 171 

Departmental Operating Activities 

211. Our Reports for several successive years have pointed out that although the 
Financial Administration Act requires that Crown corporations prepare specified state- 
ments of accounts annually, there is no statutory direction respecting the preparation of 
appropriate financial statements by departments and non-corporate agencies engaged in 
trading or servicing activities. The usual procedure has been to confine reporting to the 
inclusion of the revenue from such activities among the other items of revenue in the 
Public Accounts, while the expenditure reporting has been associated with the relevant 
parliamentary appropriations. Where Parliament has authorized the operation of revolving 
funds for the purpose of acquiring and managing stores, etc., statements summarizing the 
transactions in the funds are also included in the Public Accounts. 

Over the past several years we have expressed the view that Parliament should be 
provided with clearer information concerning the actual financial results of departmental 
trading and servicing activities. To that end, and without necessarily disturbing the 
bases of reporting presently followed, we have stressed the desirability of including in the 
Public Accounts financial statements for the various activities showing the overall results 
of operations clearly and concisely. The statements contemplated would be on the accrual 
basis and include charges for the amortization of building and equipment costs, interest on 
funds employed, the value of services provided without charge by other departments, etc. 
The form of presentation would permit a reconciliation between the operating results on 
this basis and those recorded on the cash basis. Also contemplated is the preparation of 
balance sheets to show the financial position of the activities at the year-end. The Audit 
Office would be prepared to examine and certify such statements. 

Our view received the support of the Public Accounts Committee which in its Fifth 
Report 1961 stated that "it would be desirable, in order that members have a clear under- 
standing of the true financial results of departmental trading or servicing activities, were 
overall financial statements included in the Public Accounts without undue cost or staff 
increases". Again, in its Fourth Report 1963 the Committee reiterated this belief and the 
Auditor General was requested "to continue to keep development of this objective under 
close surveillance and to report to the Committee in due course". (See Appendix 1, item 2.) 

The Royal Commission on Government Organization also pointed out that the appro- 
priation accounts kept on a cash basis do not adequately reflect the financial results of the 
operating activities carried on by many departments. The Commission recommended that 
the financial results of departmental operating activities be prepared and presented in a 
more informative manner, not only to assist Parliament but also to aid management in the 
control of its costs. 

The paragraphs which follow illustrate how a number of the larger departments and 
agencies involved in trading or servicing activities have already reached or are progressing 
towards the development of financial statements along these lines. It will be noted that 
the publishing activities of the Queen's Printer have been treated separately from public 
printing and stationery activities. The latter, formerly the responsibility of the Department 
of Public Printing and Stationery, are now the responsibility of the Department of Defence 
Production. 



172 AUDITOR GENERAL'S REPORT 

212. Agricultural Products Board. This Board operates under the authority of the 
Agricultural Products Board Act, R.S., c.4, and consists of a chairman and two members 
appointed by the Governor in Council. The Act empowers the Board, under the direction 
of the Minister of Agriculture and subject to approval of the Governor in Council, to buy, 
sell, or import, and to store, transport or process agricultural products. The Agricultural 
Products Board Account was established in the Consolidated Revenue Fund in accordance 
with section 5 of the Act and all financial transactions of the Board are recorded in this 
Account. The Board's activities are administered by personnel of the Department of 
Agriculture and the members of the Board also serve on the Agricultural Stabilization 
Board. 

In response to the recommendation of the Public Accounts Committee in its Fifth 
Report 1961, overall financial statements, including the estimated cost of major services 
provided without charge by government departments, were prepared by the Agricultural 
Products Board. These have been examined and certified by us and are to be found in the 
Public Accounts (Volume II, pages 1.36 to 1.38). 

The proprietary equity of the Government of Canada at the year-end was represented 
by inventories, at cost, consisting of: 3,735,000 pounds of dry skim milk valued at $473,000; 
and 229,000 dozen whole eggs and 177,000 pounds of dried eggs valued at $274,000. 

A summary of the results of operations for the years ended March 31, 1965 and 1964 
follows : 

Year ended March 31 



Sales— Dry skim milk $ 2,505,000 

Cost of sales — 

Inventory, April 1 

Purchases 3,026,000 

Storage 

Processing costs , 



Less: Inventory, March 31. 



Net loss on sales 

Freight, cartage, handling 

Estimated cost of major services provided without charge by 
government departments: 

Interest on working capital 

Administration 

Accounting and cheque issue 



Total loss. 



1965 


1964 


. $ 2,505,000 


$ 2,088,000 






453,000 


1,195,000 


3,026,000 


2,240,000 


36,000 


78,000 


35,000 








3,550,000 


3,513,000 


747,000 


453,000 


2,803,000 


3,060,000 


298,000 


972,000 


2,000 

r 


32,000 


39,000 


82,000 


5,000 


5,000 


2,000 


2,000 


46,000 


89,000 


$ 346,000 


$ 1,093,000 



AUDITOR GENERAL'S REPORT 173 

The loss for the year was met to the extent of $300,000 by funds provided by Depart- 
ment of Agriculture Vote 85d, and to the extent of $46,000 by major services provided 
without charge by government departments. 

Only two agricultural products, first grade dry skim milk and grade A eggs, were 
purchased during the year. The Board purchased 25,340,000 pounds of dry skim milk, at 
eleven cents per pound, from exporters and resold the product, at a lower price, to the 
same exporters without taking possession. Payment of the differential of four cents per 
pound on 1,408,000 pounds and one cent per pound on 23,932,000 pounds, aggregating 
$296,000, was made to the relative exporters on presentation of export documents. The 
Board's stock of dry skim milk declined by 119,000 pounds which was sold to the Depart- 
ment of External Affairs for donations to other countries. The eggs were acquired as part 
of the World Food Program and none were sold. 

213. Agricultural Stabilization Board. The Agricultural Stabilization Board was 
established by the Agricultural Stabilization Act, 1957-58, c. 22, and has the responsibility 
for stabilizing prices of agricultural commodities at levels bearing a fair relationship to 
their cost of production. Stabilizing measures take the form of either the purchase of 
commodities at prescribed prices, or payment to producers of amounts by which prescribed 
prices exceed those determined by the Board to be the average prices at which commodities 
are currently being sold, or payments to processors for the benefit of producers. Pursuant 
to the Act, the Agricultural Commodities Stabilization Account was established in the 
Consolidated Revenue Fund and finances the activities of the Board, except for ad- 
ministrative expenses which are met through annual parliamentary appropriations. 

The proprietary equity of the Government of Canada at the year-end of $21,834,000 
was represented by inventories, at estimated market value, consisting of 44,555,000 pounds 
of butter, $21,961,000, and 3,650,000 pounds of pork, $1,102,000, offset in part by advances 
from customers and accounts payable aggregating $1,229,000. 

For a number of years the Board experienced a mounting surplus in stocks of butter 
since very little opportunity was found for substantial export sales. However, during 1964 
generally poor production conditions prevailed in Europe. It was thus possible to dispose 
of the residual stocks accumulated from 1958 to 1962 to the extent that the inventory of 
butter decreased by 102.2 million pounds from the 146.7 million pounds held on March 31, 
1964. 

The results of the Board's activities for the year ended March 31, 1965 are summarized 
as follows : 

Trading operations — 

Cost of products sold $ 92,799,000 

Revenue from sales 80,622,000 

Net loss on sales 12,177,000 

Cost of products destroyed by fire 87,000 

Net loss on trading operations $ 12,264,000 



174 AUDITOR GENERAL'S REPORT 

— by commodities — 
Sales Cost of Sales Net loss 



Butter $ 71,633,000 

Pork 193,000 

Cheese 8,796,000 


9 


111,000 
273,000 
,502,000 




11 


478,000 

80,000 

706,000 




$ 80,622,000 


$ 92,886,000 


12 


,264,000 




Deficiency payments — ■ 
Eggs . . 












986,000 

553,000 

300,000 

1,000 




Wool 




























Other 


























1,840,000 


Payments for stabilization of prices — 
Butterfat content of milk and cream 
Milk used for cheddar cheese 


35,497,000 
4,339,000 
1,941,000 


Dried casein and caseinates 


























41,777,000 



Estimated cost of major services provided without charge by 
government departments — 

Interest on working capital 4,815,000 

Administration 564 , 000 

Accounting 182,000 

Accommodation 33 , 000 

Contribution to Public Service Superannuation Account 16,000 

Carrying of franked mail 7 , 000 

Employee surgical-medical insurance premiums 1 ,000 

Employee compensation payments 1 , 000 



5,619,000 
Net loss for the year $ 61,500,000 



The loss for the year together with the balance of loss of $2,555,000 brought forward 
from the previous year was met to the extent of $57,118,000 by funds provided by De- 
partment of Agriculture Vote 80d, and to the extent of $5,619,000 by major services 
provided without charge by government departments. The balance of the loss, $1,318,000, 
was deducted from the proprietary equity of the Government of Canada on the balance 
sheet of the Board. 

During the year, two fires occurred in warehouses containing Board products and 
losses of butter valued at $23,000, and pork valued at $64,000, were charged to trading 
operations. 

Toward the close of the year, the Board received reports of thefts involving 64,000 
pounds of butter valued at $33,000 stored in warehouses located in the Province of Quebec. ! 
The Board obtained a legal opinion to the effect that under circumstances of forcible entry, 
the warehouse proprietors would not be liable. This loss will be written off as a charge to 
operations in the ensuing year. 






AUDITOR GENERAL'S REPORT 175 

214. Airport operations. The capital investment of the Department of Transport in 
airports as at March 31, 1965 was $629,007,000 compared with $605,596,000 at the same 
date in the preceding year, a net increase of $23,411,000 for the year. 

The revenue from civil aviation airport operations for the year amounted to $22,441,000 
compared with $16,971,000 for the preceding year. Details of this revenue, together with 
comparable figures for the preceding year, are as follows : 

Year ended March 31 



1965 1964 



Aircraft landing fees — 

Domestic $ 3,822,000 $ 3,609,000 

Trans-oceanic 6,243,000 3,478,000 

Trans-border 992,000 992,000 

Other 27,000 15,000 



11,084,000 8,094,000 



Rentals — 

Office, shop and garage space 2,298,000 1,425,000 

Living quarters 364,000 361,000 

Hangar 173,000 183,000 

Other 1,189,000 1,036,000 



4,024,000 3,005,000 



Concessions — 

Gasoline and oil 2,063,000 1,927,000 

Other 3, 160,000 2,200,000 



5,223,000 4,127,000 



Miscellaneous revenue 2,110,000 1,745,000 



Total revenue $ 22,441,000 $ 16,971,000 



The provision for "Airports and Other Ground Services — Operation and Maintenance" 
(included in Department of Transport Vote 35) was charged with expenditures totalling 
$24,114,000 for the year 1964-65, an increase of $3,833,000 over the corresponding figure 
of $20,281,000 for the preceding year. The excess of expenditure (excluding new construc- 
tion) on airways and airports over the revenue received was therefore $1,673,000, a de- 
crease of $1,637,000 from the preceding year's figure of $3,310,000. 

The results thus recorded are on a cash basis and do not include any provision for 
amortization of airport construction costs, interest on funds employed, or other costs such 
as a portion of the expenditure charged as air services administration, which would have 
to be taken into consideration if the actual net costs of civil aviation airport operations 
were to be determined. The Department does, however, maintain accounts on an accrual 



176 AUDITOR GENERAL'S REPORT 

basis for its operations at 17 of the major airports, which together account for approxi- 
mately 91% of the revenue from civil aviation airport operations, and prepares therefrom 
periodic financial statements for management purposes. A consolidation of these state- 
ments, which includes a provision for depreciation of civil aviation facilities (though not 
for the other costs referred to), for the year ended March 31, 1965 is given as an appendix 
to the Department's section in Volume II of the Public Accounts. 

215. Board of Grain Commissioners for Canada. This Board operates under the 
authority of the Canada Grain Act, R.S., c. 25, and is composed of a chief commissioner 
and two other commissioners appointed by the Governor in Council. The Board has 
jurisdiction to inquire into any matter relating to grading, weighing and storage of grain, 
unfair or discriminatory operation of any elevator, and any other matter arising out of the 
performance of the duties of the Board. 

The following is a comparative summary of the results of operations for the past two 
years : 

Year ended March 31 



1965 1964 



Expenditure — 

Salaries, allowances, etc % 4,465,000 $ 4,496,000 

Contributions to Public Service Superannuation Account 260,000 249,000 

Rent 189,000 192,000 

Travel 148,000 158,000 

Printing and stationery 65 , 000 54 , 000 

Other 314,000 269,000 

5,441,000 5,418,000 

Revenue — 

Inspection 2,360,000 2,034,000 

Weighing 1,159,000 1,005,000 

Registrations and cancellations 67 , 000 58 , 000 

Licences 28,000 28,000 

Sundry 4,000 4,000 

3,618,000 3,129,000 

Excess of expenditure over revenue $ 1,823,000 $ 2,289,000 



The practice of sampling wheat in railway cars at Calgary, Edmonton and Winnipeg 
was discontinued during the year and sampling is now done at the Lakehead or tidewater. 
A slight reduction in staff has resulted. 

The fees chargeable for inspection and weighing services are, for the most part, based 
on volume of grain. The increased earnings from these services are attributed to the 
increase in the movement of grain due to the sale of wheat to Russia. 









AUDITOR GENERAL'S REPORT 



111 



In previous Reports we have pointed out that the fees charged for the various services 
provided by the Board had not been revised since 1949, although the costs of performing 
these services had been steadily increasing. With effect from August 1, 1965, the fees to 
be charged for inspection and weighing services have been increased by 50% (see 
Appendix 1, item 12). 

Estimated costs, aggregating $294,000, for contributions to the Public Service Super- 
annuation Account and other employee benefits, which have been provided without charge 
by government departments, are included as expenditure of the Board. 



216. Canadian Government Elevators. The Canadian Government Elevators comprise six 
elevators, located at Moose Jaw, Saskatoon, Calgary, Edmonton, Lethbridge and Prince 
Rupert, and are managed and operated by the Board of Grain Commissioners for Canada 
under authority of section 166 of the Canada Grain Act, R.S., c. 25, and Order in Council 
P.C. 1372 of August 19, 1925. 

The proprietary equity of the Government of Canada in the Elevators at March 31, 
1965 was $11,115,000, represented by fixed assets costing $10,543,000, advances for 
recoverable freight charges, $93,000, and working capital, $479,000. 

The following is a summary of the results of operations for the year with comparable 
amounts for the preceding year : 

Year ended March 31 



1965 



1964 



Operating revenue — 

Storage 

Elevation 

Cleaning 

Screenings 

Drying 

Other 

Expense — 

Salaries and wages 

Grants in lieu of taxes 

Power 

Maintenance — buildings, plant and equipment 

Head office expenses 

Contributions to Public Service Superannuation Account. 
Employees' surgical-medical insurance and compensation. 
Other 

Operating loss, without provision for depreciation 



$ 480,000 


$ 558,000 


446,000 


343,000 


143,000 


91,000 


102,000 


75,000 


75,000 


17,000 


51,000 


20,000 


1,297,000 


1,104,000 


911,000 


886,000 


151,000 


195,000 


96,000 


84,000 


72,000 


149,000 


71,000 


59,000 


51,000 


58,000 


7,000 


7,000 


49,000 


35,000 


1,408,000 


1,473,000 


$ 111,000 


$ 369,000 



178 AUDITOR GENERAL'S REPORT 

Normal practice in the grain trade is to allow free storage for the first five days on 
all grains received. The rapid turnover of wheat resulting from the large volume of sales 
abroad was the main factor in the decline in revenue from storage. During 1964-65 the 
Elevators handled 2,420,000 bushels of rapeseed compared with 472,000 in the previous 
year. The rate for elevation of rapeseed is 5| cents per bushel whereas the rate charged for 
wheat is only If cents per bushel. The increased number of bushels of rapeseed handled 
during 1964-65 accounts for the increased revenue from elevation. The condition of the 
grains received, especially rapeseed, was such that exhaustive cleaning was required 
resulting in an increase in the revenue from cleaning and screenings. 

During 1963-64 grants in lieu of taxes were increased and the adjustment was made 
retroactive to January 1, 1961. The restoration of concrete bins was completed in 1963-64, 
at a cost of $86,000, and no extensive repairs were undertaken during 1964-65. 

The loss of $65,000 by the Lethbridge elevator was its twentieth consecutive annual 
loss. The accumulated deficits during this period have amounted to $885,000. 

Estimated costs, aggregating $58,000, for contributions to the Public Service Super- 
annuation Account and other employee benefits, which have been provided without charge 
by government departments, are included as items of expense of the Elevators. 

217. National Film Board. This Board was established in 1939 by the National Film 
Act, R.S., c. 185, for the purpose of initiating and promoting the production and distri- 
bution of films in the national interest. In accordance with section 18 of the Act, the 
National Film Board Operating Account in the Consolidated Revenue Fund has been 
credited with amounts provided by annual parliamentary appropriations for "Administra- 
tion, Production, and Distribution of Films and Other Visual Materials" (National Film 
Board, Vote 1), with amounts transferred from appropriations of other government 
departments in respect of work undertaken for them, and with income from the sale and 
rental of films and other visual materials. All expenditures made by the Board have been 
charged to the Account, with the exception of expenditures on capital equipment acquired 
for its own use which have been charged to a separate appropriation. Included in the 
expenditures charged to the Account are the costs of capital equipment acquired for the 
Canadian Government Photo Centre in Ottawa, as authorized by the National Film Board 
Vote L30, Appropriation Act No. 5, 1963. 

The equity of the Crown in the Board at March 31, 1965 was $2,441,000 compared 
with $1,820,000 at the end of the previous year. The equity consisted of a balance of 
$1,109,000 in the National Film Board Operating Account, including $94,000 for the 
Canadian Government Photo Centre equipment, and $1,332,000, being the cost of the 
Board's capital equipment less accumulated depreciation and disposals. 



AUDITOR GENERAL'S REPORT 179 

The following is a comparative summary of expense and income for the past two years : 

Year ended March 31 



1965 1964 



Expense — 

Production of films and other visual materials $ 3 , 480 , 000 $ 3 , 068 , 000 

Distribution of films 2,654,000 2,413,000 

Cost of production of films and other visual materials for govern- 
ment departments and others 2,744,000 1,631,000 

Estimated cost of major services provided without charge by 

government departments 1 ,091 ,000 1,099,000 

Administration and general services 1 ,017,000 963,000 

Canadian Government Photo Centre — net loss 12,000 — 

Depreciation on equipment 344 , 000 349 , 000 



11,342,000 9,523,000 

Income — 

Sales of films and other visual materials 3, 120,000 1 ,844,000 

Rentals and royalties 724,000 757,000 

Miscellaneous 50,000 29,000 

3,894,000 2,630,000 

Net expense $ 7,448,000 $ 6,893,000 

Net expense provided by: 

Parliamentary appropriations $ 6,013,000 $ 5,445,000 

Major services provided without charge by government depart- 
ments 1,091,000 1,099,000 

Depreciation 344,000 349,000 

$ 7,448,000 $ 6,893,000 



The gross expense of the Board increased by $1,819,000, or 19% over the total for 
the previous year. This was mainly due to an overall increase of $1,525,000 in the combined 
production costs of films and other visual materials, of which $1,113,000 related to sponsor- 
ed productions undertaken for government departments and agencies and $412,000 to 
the expansion of the regular production program. 

The income of the Board increased by $1,264,000, or 48% over that of the previous 
year. This was due largely to various special projects undertaken during the year for the 
Canadian Corporation for the 1967 World Exhibition, the Centennial Commission, and 
certain government departments. 

The estimated cost of accommodation, contributions to the Public Service Super- 
annuation Account and other employee benefits, accounting, cheque issue and other 
services provided to the Board without charge by government departments, is included in 
a single amount of $1,091,000 in the Statement of Income and Expense, a corresponding 



180 AUDITOR GENERAL'S REPORT 

analysis being shown in the lower part of the statement. We have recommended to the 
management that the costs of these services be integrated as soon as practicable into the 
costing system to produce accurate costs as well as to render possible a more realistic and 
complete presentation of the various costs of production and administration of the Board 
in its annual financial statements. 

The Canadian Government Photo Centre which was established in 1964 for the 
purpose of co-ordinating the Government's still photographic activities, began operations 
in Ottawa on December 1, 1964. For the four-month period ended March 31, 1965 the 
operations of the Centre showed a profit of $4,700 but there were preliminary expenses 
of $16,700, the net result being a loss of $12,000 which was absorbed by the Board. 

On the recommendation of a Board of Survey constituted in accordance with section 60 
of the Financial Administration Act, the Board deleted from its inventory obsolete and 
damaged stores having a cost value of $4,024. These stores formed part of the assets of the 
National Film Board Operating Account and their deletion resulted in a deficiency in 
that Account. A provision of section 18(5) of the National Film Act is that "no amount 
may be credited to the Account to meet the deficiency except pursuant to an appropriation 
by Parliament for that purpose". Notwithstanding this prohibition, the amount of the 
deficiency was credited to the Account and charged to the National Film Board appro- 
priation for "Administration, Production and Distribution of Films and other Visual 
Materials" which, in our opinion, is not "an appropriation by Parliament for that purpose" 
within the meaning of section 18(5) of the National Film Act. 

218. Post Office activities. The following is a summary of Post Office transactions 
recorded in the Post Office section of Volume II of the Public Accounts for the year ended 
March 31, 1965 in comparison with the corresponding amounts for the preceding year: 

Year ended March 31 
1965 1964 

Gross postal revenue $ 263,704,000 $ 235,808,000 

Less: Expenses paid from revenue 33,268,000 35,091,000 

Net postal revenue 230,436,000 200,717,000 

Miscellaneous 53,000 57,000 

230,489,000 200,774,000 

Expenditures from parliamentary appropriations — 

Operations 135,375,000 135,609,000 

Transportation 69,056,000 65,952,000 

Administration, financial services, etc 6,028,000 5,334,000 



210,459,000 206,895,000 

Excess of revenue over expenditure S 20,030,000 $ (6,121,000) 






AUDITOR GENERAL'S REPORT 181 

The Department estimates that, of the $27.9 million increase in gross postal revenue, 
approximately $8.8 million was due to increases in registration and special delivery fees 
effective November 1, 1963 and in C.O.D. fees and third class matter rates effective 
April 1, 1964. 

The recorded excess of revenue over expenditure of $20,030,000 did not take into 
consideration the cost of services provided without charge by other government depart- 
ments. These costs were estimated at $35,825,000 and comprised the following: accommo- 
dation, $25,298,000; contributions to the Public Service Superannuation Account and to 
employee surgical-medical insurance premiums, $9,681,000; accounting and cheque issue 
services, $584,000; and employee compensation payments, $262,000. Credits for carrying 
mail franked by and sent to other government departments and Members of Parliament 
estimated at $4,210,000 were also excluded. Had this unrecorded expenditure and revenue 
been taken into account, there would have been an operating deficit for the year of 
$11,585,000 instead of an excess of revenue over expenditure of $20,030,000. 

219. Public Printing and Stationery activities. Under the Public Printing and Stationery 
Act, R.S., c. 226, the Department of Public Printing and Stationery is charged exclusively 
with the following duties in relation to services required for the Senate and House of 
Commons and the several departments of the Government: 

(a) the execution and audit of all printing, stereotyping, electrotyping, lithography, binding 
work, or work of the like nature, and the procuring of the material therefor; 

(b) the purchase and distribution of all paper, books and other articles of stationery of 
whatsoever kind, except books that are required for the Library of Parliament, and 
printed books required for the use of the chaplains, libraries or schools in the penitentia- 
ries which may be procured in the manner authorized by law; 

(c) the sale of all books or publications issued by order of either or both Houses of Parliament 
or by any department of the Government; and 

(d) the audit of all accounts for advertising. 

For the purpose of carrying out the provisions of the Act, a working capital advance 
(Queen's Printer's Advance) is authorized under section 37 of the Act to enable the 
Queen's Printer to purchase material for the execution of orders given or requisitions made 
under the provisions of the Act, and to pay the wages of workmen engaged in the execution 
of such orders or requisitions. Administrative expenses and capital expenditures are 
provided for by annual parliamentary appropriations. 

With a view to implementing certain recommendations made by the Royal Commis- 
sion on Government Organization, the Governor in Council under the Public Service 
Rearrangement and Transfer of Duties Act, transferred the powers, duties and functions 
of the Department of Public Printing and Stationery in 1963-64 as follows: 

July 25, 1963 Order in Council P.C. 1963-1130 provided for the transfer to the 

Minister of Industry of the powers, duties or functions of the Secretary 
of State of Canada under the Public Printing and Stationery Act. 



182 AUDITOR GENERAL'S REPORT 

August 21, 1963 Order in Council P.C. 1963-1254 provided for the transfer to the 

Department of Defence Production of the control or supervision of 
the Procurement Purchasing and Stores Branch, the Production 
Branch, the Outside Printing Production Branch, and the supporting 
services contained in the Departmental Secretary's Branch, the 
Administrative Services Branch and the Financial Services Branch 
of the Department of Public Printing and Stationery. 

October 3, 1963 Order in Council P.C. 1963-1450 provided for the transfer from the 

Department of Defence Production to the Department of Public 
Printing and Stationery of the responsibility for the procurement of 
print for books and publications. 

February 3, 1964 Order in Council P.C. 1964-156 provided in part for the transfer to 

the Secretary of State of Canada of the powers, duties or functions 
of the Minister of Industry relating to the Department of Public 
Printing and Stationery. 

The effect of the foregoing is that the functions of the Department of Public Printing 
and Stationery, with the exception of the publication and distribution of books and publi- 
cations which were returned to the Department, have been assigned to the Department of 
Defence Production, as follows: (a) the Canadian Government Supply Service which 
administers the Procurement Purchasing and Stores Branch, and (b) the Canadian Govern- 
ment Printing Bureau which operates the main printing plant in Hull, Que. and the 
outside printing plants. 

Existing legislation governing printing and stationery has remained substantially un- 
changed since 1886. Many of the provisions of the Public Printing and Stationery Act 
are no longer applicable or have proven impracticable. For example: 

(1) The Department of Public Printing and Stationery today administers only a small 
segment of the duties with which it is charged by the Act. 

(2) The qualification requirements for appointments to the several positions set forth in the 
Act are not always adhered to and the officers appointed are not always in charge of the 
functions set out in the statute. 

(3) Section 14 of the Act provides for the establishment of the Printing Bureau in Ottawa 
but the plant has been located in Hull, Que. for many years and printing units are located 
in various parts of the country. 

(4) The position of Superintendent of Stationery is no longer occupied. 

(5) The responsibility for the audit of all advertising accounts was transferred to the 
Comptroller of the Treasury in 1954 and remains there. 

(6) The responsibility placed on the Queen's Printer by the Act for the examination and 
certification of certain railway accounts has been carried out by the Canadian National 
Railway Company for years. 

(7) The Act requires the Auditor General annually or more frequently at his discretion to 
cause the stock of stationery, printing materials and supplies in store to be checked with 
the quantity purchased and supplied. Printing units are located at 18 different centres 
in Canada outside of Ottawa and stationery and printing stocks have been merged with 
the stores inventories of the Canadian Government Supply Service, a branch of the De- 
partment of Defence Production. For these reasons it is impracticable to provide the ty pe 
of specific audit certificate required by section 34(2) of the Public Printing and Stationery 
Act. 






i 



AUDITOR GENERAL'S REPORT 183 

We are informed that draft legislation is in course of preparation designed to im- 
plement the changes already approved by the Governor in Council. We understand that 
it will also correct the anomalies referred to above. 

The basic operating expenses of the stores and printing activities are charged to the 
Queen's Printer's Advance under section 37 of the Public Printing and Stationery Act. 
The Act provides that "the amount of outstanding advances to the Queen's Printer, after 
deducting therefrom all amounts due to him by either House of Parliament or by the 
several departments shall at no time exceed the sum of four million dollars". This authority 
has been divided between the Canadian Government Supply Service and the Canadian 
Government Printing Bureau. However, as separate accounting departments were set up 
only in the last quarter of the year, the form of the financial statements at March 31, 
1965 remains substantially the same as in previous years. 

The following is a summary of the operations of the Queen's Printer's Advance for 
the year together with comparable figures for the previous year: 

Year ended March 31 



1965 1964 



Sales $ 21,363,000 $ 19,639,000 

Deduct: Cost of sales 20,698,000 19,372,000 

Profit on sales 665,000 267,000 

Discount earned, etc 13,000 9,000 

Profit (due to the Receiver General) $ 678,000 $ 276,000 



In determining this profit no provision has been made for the cost of services and 
facilities such as light, power, telephone, heating, amortization of building and equipment 
costs, etc., provided by other government departments and by Department of Defence 
Production appropriations. A comparison of the expenditures from Department of Defence 
Production appropriations with those of the preceding year is as follows : 

Year ended March 31 



1965 1964 



Purchasing, stationery and stores (largely for salaries and wages of 
procurement and stationery stores personnel and repairs to office 
equipment) 

Directorate of Printing 

Administration 

Plant, equipment and replacements 

Gratuities to f amilies of deceased employees 



In accordance with section 58 of the Financial Administration Act, the profit of 
$678,000 was transferred to revenue — "Return on Investments". This unusually large 



$ 1,389,000 


$ 


1,228,000 


565,000 




636,000 


336,000 




83,000 


1,000 




— 


$ 2,291,000 


$ 


1,947,000 



181 



AUDITOR GENERAL'S REPORT 



profit arose because of the considerable increase in productive hours caused by the extra 
volume of work resulting from the long session of Parliament. It was earned partially by 
the Canadian Government Printing Bureau ($580,000) and by the Canadian Government 
Supply Service ($98,000). 

At March 31, 1965 the amounts due the Department of Defence Production as a 
result of sales made to the House of Commons and to the several departments by the 
Canadian Government Printing Bureau and the Canadian Government Supply Service 
were as follows : 



Agriculture 

Citizenship and Immigration 

Defence Production 

Finance 

House of Commons 

Labour 

Mines and Technical Surveys 

National Defence 

National Revenue 

Post Office 

Secretary of State 

Trade and Commerce 

Transport 

Queen's Printer (Publications) 

Others* 

Total $ 3,032,000 



Printing 


Supply 




Bureau 


Service 


Total 


46,000 $ 29,000 


$ 75,000 


53,000 


25,000 


78,000 


21,000 


39,000 


60,000 


125,000 


104,000 


229,000 


700,000 


17,000 


717,000 


103,000 


2,000 


105,000 


50,000 


11,000 


61,000 


475,000 


337,000 


812,000 


60,000 


43,000 


103,000 


48,000 


33,000 


81,000 


190,000 


4,000 


194,000 


336,000 


33,000 


369,000 


44,000 


19,000 


63,000 


383,000 


5,000 


388,000 


398,000 


717,000 


1,115,000 



$ 1,418,000 $ 4,450,000 



*Includes an amount of $497,000 unbilled to departmental customers at the year-end. 

An analysis of the accounts receivable showed that an amount of $615,000 had been 
outstanding for more than sixty days. It appears, therefore, that a more aggressive follow- 
up on collections should be initiated by the Department. Instances were noted where 
delays in payment were due to the debtor departments being without funds pending the 
passing of supplementary estimates. 

In accordance with section 34(2) of the Public Printing and Stationery Act we 
reported to the Minister of Defence Production on our examination of the stores on hand. 
Included in the year-end inventories were obsolete or unserviceable stores in the amount 
of $41,000. These stores are held by the Canadian Government Supply Service and no 
action had been taken at the year-end to have them deleted under section 60 of the Finan- 
cial Administration Act. The value of the inventory on hand at March 31, 1965, $2,900,000, 
included an unrealized profit of $19,000 due to the fact that some stores are valued for 
inventory purposes at standard cost instead of at actual cost (see paragraph 231). 

In the year 1961-62, 247 typewriters purchased through the revolving fund at a cost 
of $53,000 were supplied to the House of Commons on an annual rental basis of 5% of 
the cost. As at March 31, 1965, the recoverable balance was $44,000. It is clear that a 
rental charge of 5% of cost per annum is insufficient to recover the original cost of these 
machines before they are worn out. 






AUDITOR GENERAL'S REPORT 185 

220. Queen's Printer — publishing activities. According to the provisions of the Public 
Printing and Stationery Act, R.S., c. 226, and Orders issued by the Governor in Council 
under the Public Service Rearrangement and Transfer of Duties Act, the Department of 
Public Printing and Stationery is now charged solely with the function of procurement of 
print for books and publications and with the distribution of parliamentary and depart- 
mental publications. These operations include the printing of the Canada Gazette, the 
Statutes of Canada and publications required by the Government and the general public. 

The Department operates with funds provided by parliamentary appropriations. 
Major services, such as carrying franked mail, accommodation, etc., are supplied free of 
charge by other departments. 

A summary of expenditure and revenue for the year, together with comparable figures 
for the preceding year, follows : 

Year ended March 31 



1965 1964 



Expenditure- 
Parliamentary appropriations: 

Administration $ 177,000 $ 141,000 

Printing and binding official documents 1 , 349 , 000 1 , 126 , 000 

Distribution of official documents 1,041,000 690,000 

Printing of Canada Gazette 152,000 150,000 

Printing and binding annual statutes 14,000 40,000 

2,733,000 2,l/ f 7,000 

Approximate value of major services provided without charge by 
other departments: 

Accommodation 260,000 264,000 

Accounting and cheque issue 32,000 31 ,000 

Contributions to Public Service Superannuation Account. . . . 61,000 63,000 

Employee surgical-medical insurance premiums 6 , 000 6 , 000 

Employee compensation payments 1 , 000 1 , 000 

Carrying of franked mail 554,000 378,000 

914,000 743,000 



Revenue — 

Proceeds from sales 

Service fees for art work performed for other government depart- 
ments 

Commissions on sales of publications issued by international 
organizations of which Canada is a member nation 

Royalties from copyrights on government publications 



Excess of expenditure over revenue $ 1,686,000 

Parliamentary appropriations were charged with $2,733,000 during the year, an 
increase of $586,000 or 27% over the preceding year, due mainly to an increase in publish- 
ing activities. Included in the costs of printing and binding official documents are expend- 
itures of $80,000 to cover the cost of documents which were distributed free to Members 



3,647,000 


2,890,000 


1,853,000 


1,763,000 


12,000 


— 


19,000 


33,000 


77,000 


68,000 


1,961,000 


1,864,000 


$ 1,686,000 


$ 1,026,000 



186 AUDITOR GENERAL'S REPORT 

of Parliament and to organizations approved by the Governor in Council. The gross 
revenue of $1,961,000 is an increase of $97,000 over the previous year due principally to 
increased sales to the general public. 

The Queen's Printer has been provided with a revolving fund to facilitate payment 
for the printing of publications by commercial printers. This fund, which is not to exceed 
$250,000 at any time, is reimbursed by the departments for which the printing is being 
done. Transactions during the year involved payments of $657,000 and receipts of $461,000. 
Accounts receivable at March 31, 1965 amounted to $196,000, all of which have since 
been paid. 

The sales operation of the Department is handled by a mail order office located in 
Hull, Que. and by six government bookstores operating in various cities in Canada. The 
first bookstore was opened in Ottawa on March 23, 1960. Other stores were later opened 
in the following cities: Toronto (April 6, 1961), Montreal (March 29, 1962), Winnipeg 
(January 15, 1965) and Vancouver (March 23, 1965). The bookstore located in the 
National Gallery at Ottawa was taken over by the Department on April 1, 1961. 

The inventories of publications held at the government bookstores at March 31, 1965 
were estimated at $264,000 on a retail value basis. Departmental attempts to reconcile the 
value of the publications in each store with the memorandum control account maintained 
at headquarters reveal that present controls are inadequate and would neither prevent 
nor detect accounting errors and theft of books. A review of departmental inventory audits 
has disclosed substantial overages and shortages of physical stocks each year. No remedial 
action has been taken in most instances, except to adjust the headquarters' memorandum 
control account in order to reflect the physical counts made at the bookstores during the 
audit. There is no dollar value inventory control account for publications maintained at 
the bookstores. 

To correct this situation the bookstores must be brought under proper control and 
the managers held responsible for discrepancies. Our views regarding this unsatisfactory 
situation have been made known to the Department. 

Shipments to bookstores originate in the bulk store located in the Printing Bureau in 
Hull, Que. The warehousing function of the bulk store has been under the control and 
supervision of the Canadian Government Supply Service of the Department of Defence 
Production since the early part of 1965. Because of the quantity and the substantial dollar 
value involved, immediate attention should be given to instituting proper control 
procedures. 

In addition to the stock held in the bulk store and at the bookstores, quantities of 
publications are held on a consignment basis for various international organizations of 
which Canada is a member nation. No inventory control records have been established and 
as a result the current value of stock on consignment is not known. The Treasury Board 
on June 3, 1965 agreed to the Queen's Printer's proposal that purchases of publications 
and related material from the United Nations, UNESCO, and the International Atomic 
Energy Agency for re-sale in the government bookstores should be paid for through 
"firm accounts" in place of consignment accounts with these organizations. 



AUDITOR GENERAL'S REPORT 187 

221. Royal Canadian Mint. The Royal Canadian Mint operates under Part II of the 
Currency, Mint and Exchange Fund Act, R.S., c. 315, and provides "facilities for making 
coins of the currency of Canada, and for melting, assaying and refining gold". 

Transactions in gold, silver and other metals acquired by the Mint for its operations 
are recorded in revolving fund accounts. The following is a summary of these accounts 
for the year in comparison with corresponding amounts for the preceding year : 

Year ended March 31 



1965 1964 



Inventories at beginning of year $ 29,401,000 $ 27,212,000 

Purchases — 

Gold 102,005,000 98,296,000 

Silver 12,777,000 14,782,000 

Other metals 3,487,000 1 ,675,000 

118,269,000 114,753,000 

147,670,000 141,965,000 

Sales — 

Gold 104,825,000 96,072,000 

Silver coin at face value 27,369,000 20, 176,000 

Other coin at face value 8,629,000 5,513,000 

Silver bullion 57,000 86,000 

Sundry — 17,000 

140,880,000 121,864,000 

Gold revaluation 11 ,000 1,000 

140,891,000 121,865,000 

6,779,000 20,100,000 
Transfers to revenue — 

Gain on coinage operations. 11,909,000 9,276,000 

Gold refining gain 16,000 25,000 

11,925,000 9,301,000 



Inventories at end of year $ 18,704,000 $ 29,401,000 



The Public Accounts record as revenue of the Department of Finance the transfer 
of $11,925,000 from the revolving fund accounts and other Mint revenue of $3,107,000, 
a total of $15,032,000 for the year ended March 31, 1965 compared with $10,624,000 for 
1963-64. Offset against this are expenditures charged to parliamentary appropriations under 
the Department of Finance totalling $2,662,000, comprising the following : administration, 
operation and maintenance, $2,572,000 ($2,192,000 in 1963-64); and construction or 
acquisition of equipment, $90,000 ($419,000 in 1963-64). 

The net result is an excess of revenue over expenditure for the year 1964-65 of 
$12,370,000 compared with $8,013,000 for 1963-64, an increase of $4,357,000. These 
recorded results do not, however, take into consideration such expenses as interest on 



188 AUDITOR GENERAL'S REPORT 

funds employed or services provided without charge by other departments such as accom- 
modation, security, contributions to the Public Service Superannuation Account, em- 
ployees' surgical-medical insurance premiums, accounting and cheque issue services, and 
employee compensation payments. 

During the year the gain on coinage operations increased by 12,633,000 over the 
comparable figure for the previous year due to an increase of 217,397,779 in the number 
of coins issued, from 435,568,416 to 652,966,195 pieces, while sundry revenue decreased 
by $51,000. Service fees increased by $1,826,000 largely as a result of the greater number 
of uncirculated coin sets sold and an increase, effective January 1, 1965, in the selling 
price from $3 to $4 a set. 

Special Audits and Examinations 

222. In addition to the examinations of departmental accounts and the audits of the 
accounts of Crown corporations, already referred to in this Report, the following special 
audits and examinations were made by the Audit Office during the year, most of them in 
accordance with specific directions contained in various statutes: The Army Benevolent 
Fund Board, Atlantic Development Board, The Canada Council, the Custodian, Economic 
Council of Canada, Exchange Fund Account, Municipal Development and Loan Board, 
National Gallery of Canada, Public Printing and Stationery stores, The Queen Elizabeth II 
Canadian Fund to Aid in Research on the Diseases of Children, Roosevelt Campobello 
International Park Commission, Royal Canadian Mint stocks, Unemployment Insurance 
Fund and Yukon Territorial Government. 

223. The Army Benevolent Fund Board. This Board was constituted by the Army 
Benevolent Fund Act, R.S., c. 10, and consists of five members appointed by the Governor 
in Council. The Act provides for a special account in the Consolidated Revenue Fund 
called the Army Benevolent Fund to which certain moneys were credited and from which 
there shall be paid: 

to or for the benefit of [World War II] veterans or their dependants or the widows or children 
or former dependants of deceased veterans such amounts as the Board may from time to time 
determine 

together with the expenses incurred in carrying out the provisions of the Act. 

The Act directs that the Board be governed by the following principles: 

(a) plans shall be formulated on the assumption that there will be prospective beneficiaries 

for fifty years from the establishment of the Fund [in 1947]; 
(6) no grant is to be made by way of relief from the Fund where adequate relief is, at the 

time of the application, available from federal, provincial or municipal governmenta 

sources; 

(c) where grants are made to assist in the education of dependants of veterans or of childrei 
of deceased veterans, bursaries shall be granted contingent on continued need anc 
satisfactory progress and not as competitive scholarships based on academic standing 
and 

(d) amounts paid out of the Fund are not recoverable, unless obtained by fraud or mis 
representation. 



AUDITOR GENERAL'S REPORT 189 

The accounts of the Board were examined for the year ended March 31, 1965 pursuant 
to section 11 of the Act and the audit report was submitted to the Chairman and members 
of the Board with a copy being provided to the Minister of Veterans Affairs. 

Receipts amounted to $222,000 of which $210,000 was derived from interest on 
deposits with the Receiver General and $12,000 from interest on Government of Canada 
bonds. Disbursements totalled $451,000 consisting of $351,000 in grants to or on behalf of 
World War II veterans and $100,000 for service and administrative expenses. The latter 
amount was after deducting a grant of $18,000 from the Department of Veterans Affairs 
and a fee of $34,000 received from the Canadian Army Welfare Fund for managing the 
financial program of that Fund. 

After absorbing the excess of disbursements over receipts in the amount of $229,000, 
the Fund amounted to $5,552,000 at March 31, 1965 of which $5,291,000 was on deposit 
with the Receiver General, $256,000 was invested in Government of Canada bonds and 
$5,000 was in the form of accountable advances and prepaid expenses. 

224. Atlantic Development Board. This Board was established by the Atlantic Develop- 
ment Board Act, 1962-63, c. 10. The objects of the Board are to inquire into and report to 
the responsible Minister upon programs and projects for fostering the economic growth 
and development of the Atlantic region of Canada, to consider, report and make recom- 
mendations to the Minister concerning programs and projects and, with the approval of 
the Governor in Council, to enter into agreements respecting the use of the Atlantic 
Development Fund in financing or assisting in financing, to a maximum of $100 million, 
projects that will contribute to the growth and development of the economy of the Atlantic 
region and for which satisfactory financing arrangements are not otherwise available. 
The Atlantic Development Fund, established by section 16 of the Act, is a special account 
in the Consolidated Revenue Fund to which are credited such amounts as are from time 
to time required by the Board for the carrying out of its programs and projects and to 
which are charged the payments made in respect of them. 

The following is a summary of the transactions in the Fund showing the projects 
approved and funds disbursed as at March 31, 1965: 

Approved by 

the Governor Funds Outstanding 

Types of projects in Council disbursed commitments 



Power $44,000,000 $ 1,648,000 $42,352,000 

Trunk highway systems 9,000,000 1,762,000 7,23S,000 

Basic industrial services 1,660,000 232,000 1,428,000 

Research facilities 3,000,000 3,000,000 



$ 57,660,000 $ 3,642,000 $ 51,018,000 



The Board's administrative expenses and expenditures on technical and economic 
surveys and studies for the year ended March 31, 1965 were financed by parliamentary 
appropriations of the Department of the Secretary of State (Votes 20 and 20d). Accom- 



190 AUDITOR GENERAL'S REPORT 



modation and accounting services were provided without charge by government depart 
ments. The following is a comparative summary of expenditures for the past two years: 



. 



Year ended March 31 



Administrative expenses- 
Salaries 

Employee benefits .... 
Travel and removal . . . 

Accommodation 

Accounting services . . . 
Other 



1965 


1964 


$ 100,000 


$ 66,000 


6,000 


4,000 


17,000 


14,000 


15,000 


14,000 


8,000 


6,000 


10,000 


8,000 



156,000 112,000 

Technical and economic surveys and studies 519,000 105,000 

Total expenditure $ 675,000 $ 217,000 



225. The Canada Council. The Council was established by the Canada Council Act, 
1957, c. 3, to foster and promote the study and enjoyment of, and the production of works 
in, the arts, humanities and social sciences. 

A report on the audit of the Council's accounts for the year ended March 31, 1965 
was made to the Council and to the Secretary of State, as required by the Act. 

An Endowment Fund of $50 million was established under the Act. The return on 
the investments of the Fund is used to meet administrative expenses and other expend- 
iture for purposes of the Act (except for capital assistance grants to universities in respect 
of building construction projects which are made from the University Capital Grants Fund). 
Permissible expenditures relate to the following in respect of the arts, humanities and 
social sciences: grants, scholarships and awards; sponsorship of exhibitions, performances 
and publications; exchanges with other countries and organizations or persons therein 
of knowledge and information; representation and interpretation of Canadian arts, 
humanities and social sciences in other countries; and liaison with the United Nations 
Educational, Scientific and Cultural Organization. 

The following is a summary of the Endowment Fund operations for the year together 
with comparable figures for the preceding year : 

Year ended March 31 






1965 1964 



Surplus at April 1 § 82,000 $ 83,000 

Income — interest and dividends 3, 154,000 3,086,000 

3,236,000 3,169,000 

Expenditure — 

Grants 2,661,000 2,586,000 

Canadian National Commission for UNESCO 88,000 82,000 

Administrative and other expenses, less expenses recovered 437,000 419,000 

3,186,000 3,087,000 



Surplus at March 31 $ 50,000 $ 82,000 



AUDITOR GENERAL'S REPORT 191 

A University Capital Grants Fund of $50 million was established by the Act in order 
that grants could be made to universities and similar institutions of higher learning by 
way of capital assistance for building construction projects intended for use in furthering 
the arts, humanities and social sciences. These grants are paid out of the principal and 
accumulated income of the Fund. 

The following is a summary of the University Capital Grants Fund transactions for 
the year together with comparable figures for the preceding year: 

Year ended March 31 



1965 1964 



Balance at April 1 $ 11 ,499,000 $ 25,944,000 

Add: 

Interest earned on investments 790,000 1,111,000 

Net profit on disposal of securities 95,000 270,000 



12,384,000 27,325,000 

Deduct: 

Authorized grants 2,085,000 15,826,000 



Balance at March 31 $ 10,299,000 $ 11,499,000 



During the year ended March 31, 1964 the Council allocated to qualifying institutions 
the amount of $15,130,000 which represented the accumulated interest and profits earned 
by the University Capital Grants Fund from its inception to September 30, 1963. Grants 
authorized by the Council from this allocation totalled $7,040,000 during 1963-64 and 
further grants amounting to $1,440,000 were authorized during 1964-65. A total of 
$5,552,000 has been paid in respect of grants from interest and profits to March 31, 1965. 
No allocation of interest and profits was made during the year. 

In our 1964 Report (paragraph 174) reference was made to the method employed in 
the allocation of the interest and profits, to the qualification of our report to the Council 
and to the Secretary of State for the year ended March 31, 1964, and to the Sixth Report 
1964 of the Public Accounts Committee wherein it was recommended that steps be taken 
to seek amending legislation to provide clear authority for the Council to use the 1956 
census and the "hotch-pot" approach in the distribution of interest and profits in respect 
of the University Capital Grants Fund (see Appendix 1, item 30). We remain of the 
opinion that the method of allocation used by the Council is not in accordance with section 
17(2) of the Canada Council Act, and our report to the Council and to the Secretary of 
State for the year ended March 31, 1965 was again qualified to that extent. 

The Council may, under section 20 of the Act, acquire money, securities or other 
property by gift, bequest, or otherwise, and may expend, administer or dispose of them 
subject to the terms, if any, upon which they are made available to the Council. Moneys 
or property received by the Council pursuant to this section are accounted for within a 
separate balance sheet designated "Special Funds". This balance sheet has two sections, 
the first of which records the receipt and disbursement of comparatively small gifts which 



192 



AUDITOR GENERAL'S REPORT 



are accounted for within the Endowment Fund, while the second section relates to the 
following Funds from which only the income may be disbursed for the purposes designated : 

1. The amount of $1,079,000 received in March 1963 in connection with an anonymous 
gift of $4, 250,000 to be paid to the Council over a period of several years was augmented 
by an additional $131,000 received in April 1964. The income from the amounts received 
is to provide fellowship and scholarship grants to Canadians for advanced study or 
research in the fields of medicine, science and engineering at universities, hospitals, 
research or scientific institutions or other equivalent or similar institutions in Canada. 

2. A gift of $600,000 received from the Molson Foundation in 1963 to establish a capital 
fund referred to as the Molson Prize Fund the income from which is to be used for making 
cash awards of $15,000, normally two in each year, to authors or creators of works or 
to persons who have rendered service to Canada in the fields of the arts, humanities and 
social sciences which will enrich the cultural or intellectual heritage of the nation, or 
make a noteworthy contribution to understanding and unity among Canadians of 
French and English descent. 

For investment purposes the two funds have been combined and are represented by 
one portfolio. The income of $106,000 produced by the investments was allocated to the 
two funds according to the ratio which each fund bore to the total principal and surplus 
of the funds as at April 1, 1964. A summary for the year follows: 



Surplus at April 1, 1964 

Income — interest and dividends. 



Expenditure — 

Grants and awards 

Administration charge. . 

Surplus at March 31, 1965. 



Special 

Scholarship 

Fund 


Molson 
Prize 
Fund 


Total 


$ 3,000 
71,000 


$ 1,000 
35,000 


$ 4,000 
106,000 


74,000 


36,000 


110,000 


66,000 
2,000 


15,000 
2,000 


81,000 
4,000 


68,000 


17,000 


85,000 


$ 6,000 


$ 19,000 


$ 25,000 



The expenditure of $15,000 under the Molson Prize Fund represents the payment of 
the second instalments of two awards made in the preceding year. No awards were made 
from this fund during the year. The Council approved the assessing of an administration 
fee of $2,000, for the financial year ended March 31, 1965, against the income of each of 
the Special Funds to cover the expenses of administering them. 

Appropriation Act No. 2, 1965, assented to on April 3, 1965, included provision in 
Vote 18d of the appropriations for the Department of the Secretary of State for a special 
grant of $10 million to the Canada Council to be used for the general purposes set out 



t 






AUDITOR GENERAL'S REPORT 193 

in section 8 of the Canada Council Act. The grant was received by the Council after the 
close of its financial year on March 31, 1965 and consequently is recorded as a receipt in 
the 1965-66 accounts of the Council. 

226. The Custodian. In accordance with Regulation 6 of the Revised Regulations 
respecting Trading with the Enemy (1943) as set out in the schedule to the Trading with 
the Enemy (Transitional Powers) Act, 1947, c. 24, the Secretary of State is appointed 
Custodian "to receive, hold, manage, release, dispose of and otherwise deal with all 
property which is reported to him, received or controlled by him or vested in him". 
Effective from May 15, 1964, the Deputy Registrar of Canada acts as the Deputy 
Custodian. The Custodian's Office is administered by an Assistant Deputy Custodian in 
Ottawa. A report on the audit of the Custodian's accounts for the year ended December 
31, 1964 was made to the Secretary of State. 

The assets vested in the Custodian, which were valued in accordance with bases 
explained in an addendum to the statement of assets and liabilities, decreased by $771,000 
to $3,080,000 at December 31, 1964. A transfer of $350,000 to the Minister of Finance for 
the War Claims Fund, and releases of assets valued at $874,000 to former owners or their 
beneficiaries or other rightful claimants, offset in part by an appreciation of $474,000 in 
the value of remaining vested assets, accounted for the greater part of the decrease. 

Under the Regulations referred to above, the Custodian may charge against all 
property investigated, controlled or administered by him, whether it has been vested in 
him or not, a fee for services rendered not exceeding 2% of the value of the property 
including the income therefrom. He is also permitted to employ such part of the property 
vested in him or the proceeds therefrom as may be necessary to pay the expenses incurred 
in the administration of the Regulations. 

All fees and any income received from vested assets which consist of, or are converted 
into, cash or Government of Canada bonds are credited to the Custodian's Office Ad- 
ministration Account, from which all expenses of the Office are paid. Since becoming 
responsible for the audit of the Custodian's accounts in 1947, this Office has repeatedly 
drawn attention to this procedure because it is one which is not consistent with the treat- 
ment of income arising from other assets vested in the Custodian. 

From September 2, 1939 to December 31, 1964 the Custodian has accumulated a 
surplus of $4,700,000 — largely invested in Government of Canada bonds — in his Office 
Administration Account. On September 22,1965 we suggested to the Deputy Minister of 
Finance that consideration be given to whether the surplus cash resources being managed 
by the Custodian should be transferred to the Consolidated Revenue Fund, with the 
Custodian's administrative expenses being provided in future by parliamentary appro- 
priation. Consideration was also invited to whether the other cash resources might be 
managed more effectively if they were held in an open account in the Consolidated Revenue 
Fund. We were informed that the suggestions would be examine d. 



194 AUDITOR GENERAL'S REPORT 

The following is a summary of the income and expense of the Custodian for the year 
together with comparable figures for the preceding year: 

Year ended December 31 



1964 1963 



Income — 

Fees on assets released from administration $ 10,000 $ 9,000 

Interest on investments 206,000 199,000 

Interest on bank deposits 9,000 16,000 



225,000 224,000 



Expense — 

Salaries 81 ,000 108,000 

Ex gratia payment 5,000 — 

Other expense 12,000 11,000 



98,000 119,000 



Surplus $ 127,000 $ 105,000 



The income from fees on assets released from administration did not increase pro- 
portionately with the value of assets released during the year, due to a comparatively 
large settlement having been made without fee. The increase in interest on investments 
was due mainly to an increase of $11,000 in net discounts on purchases and sales of bonds 
offset by a reduction in interest earned for the year, whereas the decrease in bank interest 
resulted from the outflow of cash from among the vested assets as releases of assets from 
administration were effected. The decrease in salary costs resulted mainly from staff 
reductions that had been effected during the prior year. The ex gratia payment was made 
by Executive order, on the recommendation of the Department of External Affairs, to 
the widow of a former diplomatic representative to Canada whose assets of like value 
had been seized by the Custodian, liquidated, and the proceeds transferred to the Minister 
of Finance for credit to the War Claims Fund. 

227. Economic Council of Canada. The Council, with headquarters in Ottawa, was 
established by the Economic Council of Canada Act, 1963, c. 11, to advise how Canada 
can achieve the highest possible levels of employment and efficient production. At March 
31, 1965, the Council comprised a chairman, two directors and twenty-five other members 
broadly representative of different sectors and groups in the Canadian economy. 

Pursuant to section 20 of the Act, we have audited the accounts and financial trans- 
actions of the Council and have reported thereon, under date of June 11, 1965, to the 
Council and the Secretary of State. 



AUDITOR GENERAL'S REPORT 195 

The following is a summary of the expenses of the Council for its firsl full year of 
operation ending March 31, 1965: 

Salaries $ 643,000 

Professional and special services 68 , 000 

Travel 66,000 

Rent 63,000 

Contributions to Public Service Superannuation Account and employee insurance. . 41,000 

Stationery, supplies, telephone 36 , 000 

Other 30,000 

$ 947,000 



Of the total expense of $947,000, an amount of $834,000 was provided by Privy 
Council Vote 35 and $113,000 was the estimated value of major services provided without 
charge by government departments. 

228. Exchange Fund Account. The Exchange Fund Account, which was originally 
established by the Exchange Fund Act, 1935, c.60, "to aid in the control and protection 
of the external value of the Canadian monetary unit", and continued by the Foreign 
Exchange Control Act, 1946, c.53, now operates under Part III of the Currency, Mint and 
Exchange Fund Act, R.S., c.315. 

Pursuant to section 27 of the Currency, Mint and Exchange Fund Act we have audited 
the Exchange Fund Account and the transactions in connection therewith for the year 
ended December 31, 1964, and have addressed a report thereon to the Minister of Finance. 
This section also requires a certificate to be given annually to Parliament and I now certify 
that, in my opinion, the transactions in connection with the Account have been in accord- 
ance with the provisions of the Act and the records of the Account show truly and clearly 
the state of the Account. 

The following is a summary of the transactions in the Account for the last two years : 

Year ended December 31 



1964 1963 



Balance at January 1 $ 2,751,594,000 $2,686,227,000 

Deduct: 

Paid into Consolidated Revenue Fund in respect of pre- 
vious year's earnings 62,594,000 35,227,000 

2,689,000,000 2,651,000,000 

Add: 

Advances (net) 48,000,000 38,000,000 

Earnings on investments (to be paid into the Consolidated 

Revenue Fund) 63,552,000 62,594,000 

Balance at December 31 $ 2,800,552,000 $ 2,751,594,000 



1% AUDITOR GENERAL'S REPORT 

Year ended December 31 



1964 1963 



$ 1,241,000 


$ 78,000 


1,705,869,000 


1,898,188,000 


16,236,000 


— 


1,108,876,000 


883,500,000 


62,000 


110,000 


2,832,284,000 


2,781,876,000 


31,732,000 


30,282,000 


$ 2,800,552,000 


$ 2,751,594,000 



Represented by: 

Canadian dollars 

United States dollars and securities. 
International Monetary Fund note. 

Gold 

Suspense account 

Surplus 



The United States dollar holdings were valued at SI. 08 108 (par) at December 31, 1964 
and as a result the surplus was $19,195,000 greater than if the closing market rate of 
$1.07375 had been used. 

In our 1964 Report we referred to our previous recommendation with respect to the 
Exchange Fund Account and to the statement of the Minister of Finance to the Public 
Accounts Committee on July 21, 1964. The Public Accounts Committee made the following 
recommendation (Appendix 1, item 23) in its Sixth Report 1964: 

The Committee is glad to note that in future, commencing with this year or as soon as 
the necessary parliamentary authority is obtained, the annual balance of profit or loss 
arising from trading operations and investment, including interest and discount on securities, 
trading profits and losses on purchases and sales of foreign exchange, gold and securities, 
and the net valuation adjustments on unmatched purchases or sales during the year, is to 
be transferred to the Consolidated Revenue Fund. 

The Committee approves of the Minister's proposal that the surplus of $30.3 million at 
December 31, 1963 be left in the fund to serve as a reserve against any future revaluation 
losses. 

The Committee understands the reluctance of the Minister to decide today whether 
future profits or losses arising from changes in exchange rates should be transferred to the 
Consolidated Revenue Fund at each year-end because of the possibility of these causing 
serious distortions in the budgetary accounts. However, the Committee also noted the 
statement by the Auditor General that the present surplus would be much larger had past 
exchange losses been charged to expenditure as they occurred, and that a drop of as little as 
two cents in value of the United States dollar can again cause the Exchange Fund Account to ( 
go into a deficit position. It therefore recommends that in the event the holdings of the 
Account drop in value by an amount sufficient to eliminate the above-mentioned surplus 
and create a deficit in the Account, the Minister of Finance of the day give immediate 
consideration to the elimination of the deficit in order to maintain the full value of the i 
advances made from the Consolidated Revenue Fund to the Exchange Fund Account. 

Parliamentary authority to transfer to the Consolidated Revenue Fund the net 
profit arising from trading operations and investment, as described in the Committee's 
Sixth Report 1964 referred to above, was not obtained during the year and accordingly 






AUDITOR GENERAL'S REPORT 197 

the net profit on these transactions in 1964 is reflected in the surplus of the Account 
which increased by $1,450,000 from $30,282,000 at December 31, 1963 to $31,732,000 at 
December 31, 1964. 

229. Municipal Development and Loan Board. This Board was established by the 
Municipal Development and Loan Act, 1963, c.13. The purpose of the Act is to promote 
increased employment in Canada through financial assistance by way of loans to munici- 
palities to augment or accelerate municipal capital works programs. The Board may not 
accept applications for or approve loans after March 31, 1966, and the total amount of all 
loans approved is limited to $400 million. 

The Act requires the Board to forgive payment of 25% of the principal amount of 
the loan where the municipal project is completed to the satisfaction of the Board on or 
before March 31, 1966 and 25% of the portion of the loan advanced at that date if the 
project is not completed. 

Loan applications by municipalities require provincial approval. Four provinces, 
Quebec, Ontario, Manitoba and Saskatchewan, have entered into agreements with the 
Board, as provided in the Act, for provincial administration of programs. In these cases 
loans are made by the Board to the provinces to enable them to make loans to munici- 
palities in respect of municipal projects under the same terms and conditions as apply in 
the case of loans made by the Board directly to municipalities. 

Funds for the Board's 1964-65 administrative expenses were provided by a parliamen- 
tary appropriation (Department of Finance Vote 45). Expenses for the year amounted to 
$145,000 compared with $60,000 for seven months in the previous year. 

As at March 31, 1965, 1,323 loans to provinces and municipalities amounting to 
$242,607,000 had been approved by the Board. Loans disbursed totalled $10,183,000 of 
which $708,000, being 25% of the loans against 69 completed projects, had been forgiven 
pursuant to section 11 of the Act. Outstanding loan commitments at March 31, 1965 
amounted to $232,424,000. 

Section 12 of the Municipal Development and Loan Act provides that the Governor in 
i Council, on the recommendation of the Minister of Finance, may from time to time pre- 
scribe the rate of interest to apply in respect of loans under the Act. Such interest is payable 
! directly to the Department of Finance. Section 9(2) stipulates that it shall be a condition 
of any loan to a municipality in respect of a municipal project that the debentures to be 
issued to the Board by the municipality in respect of the municipal project will bear interest 
at the rate applying pursuant to section 12 on the date the loan is approved by the Board. 

Although an interest rate of 5|% was prescribed by Order in Council P.C. 1963- 
1918 of December 27, 1963 for the period January 1 to March 31, 1964, 21 loans totalling 
$2,404,000 were approved during this period with an interest rate of 5j% (the rate in effect 
prior to January 1). This was in accordance with a decision of the Board on December 18, 
1963 in respect of loans in process when there is a change in the interest rate. With reference 
to the four provinces with agreements for provincial administration, it was decided that 
the Board would accept loan applications at the former rate, up to several days after the 



198 AUDITOR GENERAL'S REPORT 

interest rate changes, provided the province's commitment to the municipality was made in 
the previous quarter. With reference to loan applications from the six provinces without 
agreements, it was decided that the interest rate would be the rate in effect at the time an 
acceptable application was received by the Board. However, when the interest rate was 
reduced from 5f% to5j% on January 1, 1965, the statutory provision was applied to loans 
for which applications had been received prior to January 1. 

230. National Gallery of Canada. The Gallery was incorporated under the National 
Gallery Act, R.S., c. 186. Its objects and powers comprise the development, maintenance, 
care and management of the National Gallery, the acquisition of works of art and generally 
the promotion of the public interest in art in Canada. 

Pursuant to section 9 of the National Gallery Act, the accounts for the year were 
examined and a report was addressed to the Secretary of State. 

The following is a comparative summary of expenditure for the past two years : 

Year ended March 31 



1965 1964 



$ 393,000 


$ 351,000 


427,000 


502,000 


200,000 


185,000 


516,000 


334,000 


1,536,000 


1,372,000 


192,000 


323,000 


$ 1,728,000 


3 1,695,000 



Administration, operation and maintenance — 

Salaries and wages 

Accommodation 

Protective and other special services 

Other 

Purchases of works of art 



The operating expenses of the National Gallery are met largely from parliamentary 
appropriations, with the remainder paid from a special operating account. Funds for the 
acquisition of works of art are provided through the National Gallery Purchase Account to 
which are credited moneys appropriated by Parliament for that purpose. Funds from the 
National Gallery Special Operating Account are also used to acquire works of art and 
$2,000 was expended for this purpose in 1965. 

As stated in our Reports for the last three years, parliamentary control may be weak- 
ened by the supplementing of specific appropriations by expenditures from the National 
Gallery Special Operating Account, and by crediting to the Special Operating Account 
fees from exhibitions and lectures, proceeds from the sale of slides and photographs, 
and service charges when the costs of producing this revenue are mainly met from the 
parliamentary appropriation for operating expenses. 






AUDITOR GENERAL'S REPORT 199 

231. Public Printing and Stationery stores. Section 34(2) of the Public Printing and 
Stationery Act, R.S., c. 226, requires the Auditor General to "annually or more frequently 
at his discretion, cause the stock of stationery, printing materials and supplies in store, 
to be checked with the quantities purchased and supplied". During the year, as in prior 
years, such tests were made as we considered necessary to establish that the controls 
were operating satisfactorily. In addition, we participated in the physical inventory check- 
ing by departmental personnel. A report on the examinations was made to the Minister of 
Defence Production (see paragraph 219). 

At March 31, 1965 the inventories of stationery, printing materials and supplies held 
by the Department totalled $2,900,000. A comparison with those at the end of the pre- 
ceding year is as follows : 

March 31 



1965 1964 

Printing materials and supplies 

Paper $ 491 ,000 $ 468,000 

Printing supplies 277,000 258,000 

Maintenance stores 158,000 165,000 

Printing sub-stores— Main Plant 124,000 • 110,000 

Miscellaneous 42,000 41,000 

1,092,000 1,042,000 

Work in process 858,000 874,000 

Stationery, office equipment and parts 

Stationery stores 

Typewriters and office machine parts 

Miscellaneous 



804,000 


471,000 


146,000 


154,000 


— 


6,000 


050,000 


631,000 


$ 2,900,000 


$ 2,547,000 



232. The Queen Elizabeth II Canadian Fund to Aid in Research on the Diseases of 
Children. The Queen Elizabeth II Canadian Research Fund Act, 1959, c. 33, established 
this Fund to assist individuals or organizations to undertake or carry on research into the 
diseases of children and the causes, prevention and treatment of such diseases. A Board of 
Trustees consisting of a chairman and six members is responsible for the management and 
administration of the Fund. As required by the Act, the National Research Council 
provides, without charge, such secretarial and other administrative and technical services 
and facilities as may be required by the Board, whose head office is in Ottawa. A report on 
the audit of the Fund's accounts for the year ended March 31, 1965, which contained no 
qualification, was made to the Board and to the Prime Minister as required by the Act. 



200 AUDITOR GENERAL'S REPORT 

The Act provided $1 million for the Fund and also permits the Board to accept gifts 
for its purposes. The following is a summary of the Fund's transactions for the year 
together with comparable figures for the preceding year: 

Year ended March 31 



1965 1964 

Balance at April 1 $ 1,076,000 $ 1,049,000 



Earnings on investments 58,000 58,000 

Gifts — 1 ,000 

58,000 69,000 



1,134,000 1,108,000 



Awards approved during year 78,000 32,000 

Less: Cancellation of award approved in preceding year 4,000 — 

74,000 82,000 



Balance at March 31 $ 1,060,000 $ 1,076,000 



Two categories of awards have been approved by the Board of Trustees, namely 
"Queen Elizabeth II Fellowships" and "Queen Elizabeth II Scientists". Awards in the 
first category are made to doctors of medicine or "other suitable fields of science" to enable 
them to obtain advanced training and experience in research related to diseases of children. 
During the year the maximum stipend was increased from $5,000 to $6,000 per annum, 
with the basic stipend remaining at $3,500 per annum. In addition, where applicable, a 
Fellow may receive a children's allowance and a travel grant. Two new and three renewal 
Fellowships totalling $27,200 were awarded during the year. The second category covers the 
salaries of scientists appointed to carry out research at universities or teaching hospitals. 
Regulations approved by the Board of Trustees with regard to these appointments provide 
for payments of $10,000 per annum for the first three years and $5,000 per annum for the 
next following three years, after which the institution at which the appointment is held is 
expected to maintain the salary of the appointee at an appropriate level without further 
recourse to the Fund. One such appointment was made during the year and provision for 
the $45,000 which it is expected will be ultimately expended was made in the Fund's 
accounts. The Fund continues to support three appointees of prior years and the outstand- 
ing liability of $40,000 in this connection was included in the total provision of $116,000 
for awards approved, appearing in the Balance Sheet of the Fund at March 31, 1965. 

233. Roosevelt Campobello International Park Commission. The Roosevelt Campobello 
International Park had its origin in the donation of the Roosevelt cottage and surrounding 
grounds on Campobello Island, New Brunswick, to Canada and the United States of 
America as a memorial to President Franklin Delano Roosevelt. Subsequent negotiations 
between the two countries culminated in a joint agreement of acceptance being signed on 
January 22, 1964. Establishment of the Commission was followed by the enactment in each 
country of the required legislation, the Roosevelt Campobello International Park Com 






AUDITOR GENERAL'S REPORT 201 

mission Act (1964-65, c. 19) being assented to in Canada on June 30, 1964 and pro- 
claimed on August 14, 1964. The Commission consists of six members, three appointed 
by the Government of Canada and three by the Government of the United States of 
America. 

As auditor appointed by resolution at a meeting of the Commission in February 1965, 
we examined the accounts of the Commission and reported thereon on June 29, 1965. 

For the period from its establishment on August 14, 1964 to March 31, 1965, expenses, 
mainly comprising salaries and wages, aggregated -$13,000. The operating expenses of the 
Commission are recoverable in equal shares from the Governments of Canada and the 
United States of America. During the initial period of organization funds to finance the 
Commission were advanced by the Department of External Affairs of Canada and the 
Province of New Brunswick. 

234. Royal Canadian Mint stocks. The Royal Canadian Mint is a branch of the De- 
partment of Finance and its revenue and expenditure accordingly form part of, and are 
examined with, departmental revenue and expenditure. However, section 20 of the Cur- 
rency, Mint and Exchange Fund Act, R.S., c. 315, requires that "the Auditor General 
shall, at least once in each year, inspect the store of bullion and coin at the Mint". We 
inspected these stores as at January 31, 1965 and reported thereon to the Deputy Minister 
of Finance. The stocks of bullion and metals at cost, and coin at face value, held by the 
Mint at January 31, 1965 amounted to $16,946,000 comprising: gold $2,812,000, silver 
$13,272,000, bronze $723,000, nickel $93,000, and other metals $46,000. 

235. Unemployment Insurance Fund. The Unemployment Insurance Act, 1955, c. 50 
(superseding 1940, c. 44) provides for insurance against unemployment and for the mainten- 
ance of a national employment service. To the end of 1964-65, the Act was wholly adminis- 
tered by the Unemployment Insurance Commission consisting of three commissioners 
appointed by the Governor in Council. With effect from April 1, 1965, the powers, duties 
and functions of the Commission relating to the national employment service were trans- 
ferred to the Department of Labour under authority delegated to the Governor in Council 
by Department of Labour Vote 7a of Appropriation Act No. 10, 1964. 

The Act established the Unemployment Insurance Fund as a special account in the 
Consolidated Revenue Fund to which all contributions from insured employees and their 
employers and federal government contributions equivalent to one-fifth of the total em- 
ployee-employer contributions, together with interest on investments, are credited, and 
to which benefits and other payments under the Act are charged. 

Financial statements showing the state of the Fund at the end of the fiscal year and 
the operations of the Fund during the year are prepared annually by the Commission. In 
our 1960 and subsequent Reports attention was drawn to the fact that the Act does not 
require that these financial statements be audited. The Public Accounts Committee made 
reference to this in its Fifth Report 1961, Fourth Report 1963 and Fourth Report 1964 (see 
Appendix 1, item 11) recommending that these statements be required by statute to be 
prepared by the Commission and reported upon by the Auditor General. Although the Act 
has not yet been amended, the Commission has submitted its financial statements for the 



202 AUDITOR GENERAL'S REPORT 

past four years to the Audit Office for examination, and the statements for the year ended I 
March 31, 1965, together with our report thereon to the Minister of Labour, are reproduced 
in the Public Accounts, Volume II, pages 22.22 to 22.24. 

The following is a comparative summary of the Fund's transactions for the past three 
years, together with the year-end balances at the credit of the Fund : 

1962-63 1963-64 1964-65 



Receipts — 

Contributions from employers and em- 
ployees $ 286,430,000 $ 296,586,000 $ 310,751,000 

Contributions from Government of Canada. 57 , 286 , 000 59 , 317 , 000 62 , 150 , 000 

Other income 2,570,000 1,172,000 1,914,000 



346,286,000 357,075,000 374,815,000 



Disbu rsemeiits — 

Benefit payments 403,191,000 365,655,000 335,030,000 

Interest on advances 238,000 163,000 



403,191,000 365,893,000 335,193,000 



Excess of disbursements over receipts $ 56 , 905 , 000 $ 8 , 8 18 , 000 



Excess of receipts over disbursements $ 39,622,000 



Balance at credit of the Fund $ 9,693,000 $ 875,000 $ 40,497,000 



The annual disbursements shown above do not include the administrative expenses 
of the Commission which are financed out of parliamentary appropriations for the Com- 
mission (Department of Labour Vote 30) in accordance with section 10 of the Act. These 
expenses amounted to $54,254,000 in 1964-65 compared with $48,684,000 for the preceding 
year. Also not included are: the value of accommodation for the Commission's offices 
throughout Canada, contributions to the Public Service Superannuation Account, ac- 
counting services provided by the Comptroller of the Treasury and other services provided 
by government departments, all of which were estimated at $10,410,000 for 1964-65 as 
against $10,034,000 for 1963-64. 

The increase of $5,570,000 in administrative expenses in the year was largely accounted 
for by increases in salaries and wages of $4,504,000, publicity $281,000, postage $221,000, 
office supplies $186,000, and communication services $163,000. Costs associated with a new 
program of registration of employees begun during 1963-64 to replace an inadequate 
system of numbering persons insured under the Unemployment Insurance Act and designed, 
as well, to serve the needs of the Canada Pension Plan, accounted for $617,000 of the in- 
crease in salaries and wages, $263,000 of the increase in publicity costs and $299,000 of the 
increases in other costs. The increase in salaries and wages, other than that attributable to 
the registration program, resulted from an increase of almost 400 in full-time staff which 
took place commencing in the latter part of 1963-64 following relaxation of the restriction 
imposed on staff hiring, and from a general salary increase granted in 1964-65 which was 
retroactive to the preceding fiscal year. The increase in postage is largely the result of the 
gradual extension of the system of paying benefits by mail. 



AUDITOR GENERAL'S REPORT 203 

The new registration program which has cost $1,966,000 to March 31, 1965 will be 
virtually completed by the end of 1965-66. Because early adoption of a Canada Pension 
Plan appeared imminent, the Commission, in conjunction with its program of assigning 
new numbers to all employees insured under the Act, was requested to solicit the registra- 
tion of non-insured persons as well. The cost of processing these additional registrations, 
together with the extra publicity costs arising out of the need to acquaint this segment of 
the public with the program, has resulted in costs being charged to the Unemployment 
Insurance Commission appropriation for administrative expenses in excess of those required 
to carry out the purposes of the Unemployment Insurance Act. 

Reference is made in paragraph 72 of this Report to the regional payment centre 
established in Winnipeg during the year which, with the use of electronic data processing 
equipment, was to handle payment of unemployment insurance benefits for the Prairie 
Region. The installation was not a success and was abandoned in June 1965. 

In 1964-65 receipts of the Unemployment Insurance Fund exceeded disbursements, 
marking a reversal in the series of annual deficits that have occurred in the seven preceding 
fiscal years. The surplus in the year's operations amounted to $39,622,000 compared with 
deficits of $8,818,000 in 1963-64 and $56,905,000 in 1962-63. This substantial improvement, 
which is a continuation of an upward trend which commenced in 1961-62, is attributable 
to fewer benefit payments and shorter benefit periods although there has been a slight 
increase in the average weekly benefit paid in each year. Comparisons follow: 

1962-63 1963-64 1964-65 

Average monthly percentage of the insured 

population drawing benefit 8.1% 7.2% 6.1% 

Number of initial benefit claims allowed 1,292,476 1,197,421 1,135,931 

Average number of benefit weeks paid 13.4 13.1 13.0 

Average weekly benefit rate paid $ 24 . 27 $ 24 . 49 $ 24 . 55 

For the second successive year there was an occasion during the year when the re- 
sources of the Fund were exhausted. When this happened the amounts required to dis- 
charge the Fund's liabilities were obtained by Government of Canada loans which were 
authorized to a maximum of $55,000,000 by Appropriation Act No. 2, 1964 (Department 
of Labour Vote L27e). Borrowings reached a maximum of $26,500,000 on May 29, 1964 
and were fully repaid by July 17, 1964. 

All security transactions of the Fund in the year were in a special Government of 
Canada issue which is redeemable at par subject to 30 days' prior notice, and thus no gains 
or losses on sales were incurred. 

In keeping with past practice, we reported to the Chief Commissioner on each of the 
examinations of field offices made during the year. Prompt attention was given to all 
audit observations raised and corrective action was taken where called for. Our examin- 
ations are designed primarily to test the adequacy of internal control over contributions, 
other income, benefit payments and the collection of overdue contributions, penalties and 
benefit overpayments. The extent to which adjudication of claims complies with the pro- 



204 AUDITOR GENERAL'S REPORT 

visions of the Act and regulations is also tested. In appraising the validity of benefit 
awards, no attempt is made by the Audit Office to verify the accuracy or completeness of 
information regarding claimants contained in the records of the Commission, beyond 
questioning apparent deficiencies in these records. This aspect of the verification of claims 
is carried out by the Commission's own investigation-enforcement staff. 

No attempt is made by this Office to audit the accounts of employers to see that em- 
ployer-employee contributions are fully made to the Unemployment Insurance Fund and 
that each worker is credited with the proper contributions. These records are verified by the 
Commission's internal audit division. 

236. Yukon Territorial Government. The Yukon Act, 1952-53, c. 53, provides for the 
appointment by the Governor in Council of a chief executive officer for the Territory to be 
known as the Commissioner and for the election of a Council composed of seven members. 
The Commissioner in Council is empowered by the Act to make ordinances for the govern- 
ment of the Territory in those fields normally within provincial jurisdiction. 

The accounts relating to the receipt and expenditure of territorial funds and of money 
appropriated by Parliament for the Territory are subject to examination by the Auditor 
General of Canada, in accordance with section 26 of the Act. There is no requirement for 
the preparation of annual financial statements, nor for their certification by the Auditor 
General as the statutory auditor, but the Department of Northern Affairs and National 
Resources has advised that it proposes to recommend amending legislation to rectify this. 
Pending the enactment of such legislation, the Commissioner has submitted for audit ex- 
amination the annual financial statements prepared by the Territory for publication in 
its Public Accounts, and we have agreed to furnish audit certificates with respect to these 
statements. 

The following is a summary of expenditure and revenue of the Yukon Territorial 
Government for the year ended March 31, 1965, with comparable amounts for the pre- 
ceding fiscal year: 

Year ended March 31 



1965 1964 



Expenditure — 

Education $ 1,606,000 $ 1,335,000 

Capital projects 1,595,000 2,721,000 

Roads, bridges and public works 1,356,000 1,009,000 

Yukon Hospital Insurance Service 668,000 684,000 

Justice 538,000 336,000 

Welfare 445,000 395,000 

Vocational training 302,000 230,000 

Health 301,000 260,000 

Municipal and area development 290,000 244,000 

Loan interest 267,000 206,000 

Other expenditure 669,000 615,000 



8,037,000 8,035,000 






AUDITOR GENERAL'S REPORT 205 

Year ended March 31 



1965 1964 



Revenue — 
Federal grants 

Operating 1,868,000 1,609,000 

Loan amortization 434,000 314,000 



Tax revenue .... 
Liquor profits. . . 
Licence revenue. 
Other revenue. . . 



Expenditure recoveries — 

Capital projects 

Roads, bridges and public works . . 

Education 

Yukon Hospital Insurance Service. 
Other recoveries 



2,302,000 


1,923 


,000 


969 


,000 
,000 


843 
916 


,000 


884 


,000 


286 


,000 


271 


,000 


316 


,000 


268 


,000 


4,757 


000 


4,221 


000 


840,000 


1,397 


000 


821 


000 


617 


000 


447 


000 


514 


000 


439 


000 


356 


000 


530,000 


497 


000 


3,077 


000 


3,381 


000 


7,834 


000 


7,602 


000 


$ 203, 


000 


$ 433 


000 



Excess of expenditure over revenue 

Loans repayable to the federal Government at the close of the year amounted to 
$6,855,000, an increase of $681,000 over the preceding year's total of $6,174,000. 

Under the federal-territorial financial agreement for the five-year period ending March 
31, 1967, Canada agreed to make certain annual payments to the Territory in return for 
which the Territory agreed to refrain from imposing, levying or collecting individual and 
corporation income taxes and succession duties. One of the payments for which the agree- 
ment provides is an amortization subsidy in respect of outstanding loans. For the year 
under review an amount of $434,000 was involved, of which $225,000 related to interest 
and $209,000 was for the purpose of reducing the principal of the loans. A result of this 
particular annual payment is that the federal Government provides funds to cover the 
payment of interest to itself and also to repay amounts previously appropriated for the 
purpose of making the loans to the Territory. 



I should like to record my appreciation to all members of the staff of the Audit Office 
for their loyalty and devotion to duty during the past year. 

A. M. HENDERSON, 

Auditor General of Canada. 



November 30, 1965. 



APPENDICES 

Recommendations and Observations by the Standing Committee on Public 

Accounts not yet implemented or dealt with by Executive action Appendix 1 

Summary of Employees of the Public Service, by Departments, Crown Corpora- 
tions and Other Instrumentalities authorized and on strength as at March 31, 
1965 (with comparative figures as at March 31, 1964) Appendix 2 

Summary of Expenditure by Standard Objects for the fiscal year ended March 31, 

1965 (with comparative figures for the preceding fiscal year) Appendix 3 



208 AUDITOR GENERAL'S REPORT 

APPENDIX 1 

RECOMMENDATIONS AND OBSERVATIONS BY THE 
STANDING COMMITTEE ON PUBLIC ACCOUNTS NOT YET 
IMPLEMENTED OR DEALT WITH BY EXECUTIVE ACTION 

Fourth Report 1963 — presented to the House on December 19, 1963 

1. second class mail. The Committee expressed its belief that early consideration should 
be given by Parliament to ways and means of covering the loss of the Post Office 
Department in handling second class mail and requested the Auditor General to keep 
the matter before Parliament in his annual Reports in order that subsequent committees 
may give consideration to it. See paragraph 105 of this Report. 

2. departmental operating activities. The Committee reiterated its belief that it would 
be desirable, in order that Members may have a clear understanding of the true financial 
results of departmental trading and servicing activities, were overall financial statements 
reflecting these activities to be included in the Public Accounts, provided this can be 
done without undue cost or staff increases. The Committee requested the Auditor 
General to continue to keep the development of this objective under close surveillance 
and to report thereon to the Committee in due course. See paragraphia of this Report. 

3. internal financial control. The Committee requested the Auditor General to 
continue his examinations into the important area of internal financial control and to 
report further to the House on steps taken or which should be taken to improve financial 
management in the various departments, Crown corporations and other instrumentalities. 
See paragraph 8 of this Report. 

4. unemployment assistance. The Committee shared the opinion of the Deputy Minister 
of Welfare and the Auditor General that consideration should be given by Parliament to 
redrafting the Unemployment Assistance Act so as to state more clearly the objectives 
and methods of achieving them and to remove ambiguities in the present law which 
have resulted in varying interpretations. It believed that consideration should also be 
given to including with Unemployment Assistance other existing programs to assist the 
needy so as to provide better co-ordination of federal-provincial efforts in this field. 
See paragraph 87 of this Report. 

Fourth Report 1964 — presented to the House on July 28, 1964 

5. findings of the royal commission on government organization. The Auditor 
General referred to the numerous and widespread findings made public in 1962 and 
1963 by this Royal Commission as a result of its examination into the organization and 
methods of operation of departments and agencies of the government. He reminded 
the Committee that where administrative action has caused or contributed to waste 
of public money, it is his duty to report such cases as he considers should be brought to 
the notice of the House. He pointed out that while some instances come to his attention 
directly during the course of his audit work, others are indirectly brought to light by 
action on the part of the administration itself in the course of examining its own opera- 
tions, as, for example, through the medium of internal auditing. 






AUDITOR GENERAL'S REPORT 209 

By the same token, he considers it to be his duty to study reports prepared by or for the 
managements of departments and agencies, as are by law available to him, directed 
toward the saving of public money by the elimination of wasteful practices and unneces- 
sary or uneconomical operations. To the extent such reports correctly indicate where 
and how savings could be made, the Auditor General considers he has a responsibility 
to Parliament to follow through in all such cases and ascertain what action has been 
or will be taken toward achieving such savings, or if no action is to be taken, to inquire 
why. On the other hand, he does not conceive it to be his responsibility to assess the 
practicability of any specific recommendations made because, in his view, the decision 
with respect to the extent to which, or the ways in which, such recommendations can 
and will be implemented must always be the sole responsibility of management. 

With regard to the findings of the Royal Commission on Government Organization, the 
Auditor General believes it to be of considerable importance that those relating to 
outdated procedures, uneconomical operations and wasteful practices be effectively dealt 
with, not only in the interests of improving efficiency but because of the substantial 
savings of public funds which could result. It is the opinion of the Committee that not 
only does this lie within the statutory responsibilities of the Auditor General but that 
the Auditor General's concept of his responsibilities in this matter is in accord with the 
intent and wishes of Parliament. See paragraph 7 of this Report. 

6. the form and content of the estimates. In its Third Report 1963 tabled in the 
House on December 19, 1963 the Committee had made the following immediate rec- 
ommendations under paragraph 3: 

(a) Implemented 

(6) Inclusion of supporting financial information of Crown corporations and other public instrumen- 
talities in the Details of Services for the purpose of providing better information to the Members 
and to the public with respect to the nature of the fiscal requirements of the Crown corporations 
and other agencies requiring financing by parliamentary appropriations. 

(c) Presentation of additional information in the Estimates concerning the staff of all government 
departments and the Crown corporations and other public instrumentalities referred to under 
clause (b) above: 
(i) Implemented 

(ii) brief notes explaining proposed major increases in the size of establishments. 

The Secretary of the Treasury Board explained to the Committee that he had not yet 
been able to discuss with any of the Crown corporations or public instrumentalities the 
practicability of including supporting financial information in the Estimates with 
respect to their operations. He undertook to do so and to advise the Auditor General 
for the information of the Committee. 

The members of the Committee were glad to learn from the Secretary of the Treasury 
Board that he supported the recommendations made under this heading by the Auditor 
General in his Reports to the House. The Committee believes that there is room for 
improvement in the Estimates presentation designed to provide more informative 
description and more complete disclosure of pertinent supporting detail— information 
which, in the opinion of the Committee, is essential if Parliament is to be in a position to 
give the Estimates the close study and consideration they deserve. 

The Committee also recommended that consideration be given to referring the depart- 
mental Estimates in greater numbers to the Standing Committee on Estimates so that 
it might examine them in detail and report back thereon to the House. It believed such 



210 AUDITOR GENERAL'S REPORT 

a procedure would not only accelerate the work of the House but would contribute 
materially to improving parliamentary control of public funds before those funds are 
committed or spent. See paragraph 9 of this Report. 

7. living allowances to federally-appointed judges. In its Fourth Report 1963 the 
Committee had noted that in cases where judges were appointed from time to time as 
conciliators or arbitrators on boards, they were paid living allowances of $60 a day in 
addition to actual out-of-pocket expenses for transportation, parlour and pullman car 
accommodation and taxicabs. The Committee was of the opinion that a daily rate at 
this level could be regarded as including an element of remuneration which would be 
contrary to subsection (1) of section 39 of the Judges Act. It had therefore recommended 
that if additional remuneration was to be paid to judges appointed for the purposes 
described above, the approval of Parliament for payment of such additional remuneration 
should be sought. 

The Committee recorded that, despite this recommendation, a case had since been 
noted where a rate of $100 a day was approved on May 7, 1964 by the Treasury Board 
and the Governor in Council on the recommendation of the Department of Labour. 

The Committee reiterated the recommendation made in its Fourth Report 1963 that if 
additional remuneration was to be paid to judges appointed as conciliators or arbitrators 
on boards established to deal with disputes affecting employers and their employees, the 
approval of Parliament for payment of the additional remuneration should be sought. 
See paragraph 70 of this Report. 

8. governor general's special warrants. The Committee recommended that a study 
be made of Governor General's special warrants. 

9. remission of sales tax on oleomargarine. The Committee was concerned to learn 
that the undertaking given in 1949 that the Government would submit to Parliament 
legislation designed to exempt oleomargarine sold in Newfoundland from the federal 
sales tax in the same manner as basic foodstuffs in other parts of Canada had not been 
carried out. Instead, the authority provided to the Executive by section 22 of the 
Financial Administration Act had been used to render a tax, applicable elsewhere in 
Canada, completely inoperative in one province. 

The Committee stated that it does not consider that section 22 of the Financial 
Administration Act should be used in this way. 






e 

: 



10 r cost of gasoline used in departmental vehicles at Ottawa. The Committee learned 
from the Secretary of the Treasury Board that an alternative means of effecting savings 
in the purchase of gasoline was presently being considered. Having in mind the time 
which had elapsed since the matter was first taken under consideration, the Committee 
urged the Secretary of the Treasury Board to have the matter finalized at the earliest 
possible date. The Committee further requested that the Secretary of the Treasury 
Board provide it in due course with information as to the final decision in this matter 
and also as to the various alternatives which were considered and, with respect to 
those which were rejected, the reasons for such rejection. 

The Treasury Board at its meeting on March 31, 1965 approved implementation of a 
national credit card system for Crown-owned vehicles operated by civilian Government 
departments and for which gasoline is now purchased from service stations. Department 









AUDITOR GENERAL'S REPORT 211 

of Public Works' vehicles maintaining the Northwest Highway system were not in- 
cluded. In order to permit implementation of the scheme the Board authorized the 
Department of Defence Production to enter into formal agreements with certain 
suppliers who had offered attractive discounts which it was estimated would result in 
annual savings of $158,000. 

Some of the agreements have been entered into but as of October 31, 1965 no credit 
cards had been issued. 

11. unemployment insurance fund and its administration. The Committee stated its 
opinion that it is in the public interest that the Government's consideration of the 
report of the Committee of Inquiry be completed as soon as possible, and that the 
Government bring forward promptly such proposals as it may deem necessary to deal 
with the problems raised by the report. 

The Committee also reiterated the additional recommendation made in its Fourth 
Report 1963 that preparation of the annual financial statements for the Unemployment 
Insurance Fund should be made a statutory responsibility of the Unemployment 
Insurance Commission and that the statements should be reported on by the Auditor 
General. See paragraph 235 of this Report. 

12. board of grain commissioners. In its Fifth Report 1961 the Committee had stated 
that it felt concerned that in each year since 1953-54 the expenditure of this activity 
had exceeded its revenue by more than $1 million and it requested the Auditor General 
to keep this matter under review and report thereon to the Committee in due course. 

Expenditures of the Board, including the estimated cost of $294,000 for services pro- 
vided without charge by other government departments, exceeded revenues by 
$1,823,000 for the year ended March 31, 1965. 

Effective August 1, 1965 the fees charged by the Board for inspection and weighing 
services have been increased by 50%. Had the increased rates been in effect throughout 
the year ended March 31, 1965, the Board's revenues would have been $1,760,000 
greater. See paragraph 215 of this Report. 

13. office of the auditor general. In the opinion of the Committee, it is fundamental 
that this independent auditing office be strong, capable, efficient and equipped to 
operate in accordance with the high standards of independence and objectivity expected 
of professional accountants, with respect to the legal duties. 

The Committee believes that as an officer of Parliament the Auditor General should be 
free to recruit the staff he needs in the same independent manner as do other officers of 
Parliament and Crown corporations generally. The Auditor General informed the 
Committee that the recruitment outlook was currently satisfactory and that, barring 
any unforeseen developments, he believed that he could fill his presently approved staff 
establishment under existing arrangements by the end of the year. The Committee 
therefore asked him to render a further report on this situation in due course. 

The Committee noted that amendments to the Financial Administration Act were to be 
introduced in due course and believed appropriate amendments should be considered at 
that time designed to allow the Auditor General to appoint such officers and employees 
as are necessary for the proper conduct of his Office. See paragraph 11 of this Report. 



212 AUDITOR GENERAL'S REPORT 

Fifth Report 1964 — presented to the House on August 5, 1964 
Canadian Broadcasting Corporation 

14. REPORT OF THE ROYAL COMMISSION ON GOVERNMENT ORGANIZATION. The Committee 

recommended that the Secretary of State table an official memorandum in the House 
presenting the views of the Canadian Broadcasting Corporation and its replies to each 
of the matters dealt with by this Royal Commission in its Report 19 and that this be 
done before the estimates of the Corporation are considered by the House. See para- 
graph 187 of this Report. 

Sixth Report 1964 — presented to the House on October 20, 1964 

15. NATIONAL DEFENCE ADMINISTRATIVE REGULATIONS AND PRACTICES. The Committee 

expressed the hope that the changes which have been made or are in the process of being 
made in the Armed Forces' administrative regulations will bring about the desired 
results. It requested the Auditor General to inform the House of any case where the 
changes appear to be inadequate or where abuse and waste of public funds develop. 
See paragraph 78 of this Report. 

16. unauthorized use of crown-owned vehicles. The Committee recommended that 
the regulations be amended to provide for uniform penalties of sufficient magnitude, 
applicable to all personnel, to act as a real deterrent to the unauthorized use of Crown- 
owned vehicles. 

17. financial assistance to town of oromocto. The Committee recommended to the 
Department of Finance that consideration be given to writing off to expense certain 
loans made to the Town. 

18. educational costs incurred by the department of national defence. The Com- 
mittee requested the Auditor General to follow this matter up to determine that amounts 
of grants underclaimed in the past are recovered and that practices adopted by the 
Department to avoid losses in the future are adequate. 

19. ASSISTANCE TO PROVINCES BY THE ARMED FORCES IN CIVIL EMERGENCIES. The Committee 

noted that certain provinces had not settled outstanding accounts with the Department 
of National Defence relating to assistance provided by the Armed Forces in civil 
emergencies in prior years. It also noted that as the Department had not been successful 
in collecting the accounts, they had been referred to the Executive for direction but such 
direction had not as yet been received. The Committee directed the Auditor General 
to inform it of the final outcome of these matters. 

20. pension awards effective at early age. The Committee noted that the Department 
of National Defence has been conducting a general review of the benefits payable under 
the Canadian Forces Superannuation Act and has been considering the advisability of 
introducing deferred pensions similar to those provided for under the Public Service 
Superannuation Act and that this review is continuing. The Committee requested the 
Auditor General to keep it informed as to the progress being made in the introduction 
of deferred pension benefits for servicemen retiring at comparatively early ages. See 
paragraph 84 of this Report. 

21. discretionary awards of service pensions. The Committee noted that the Depart- 
ment of National Defence is making a study in an endeavour to achieve a system under 
which the entitlements to all pensions would be specific which, if this were possible, 



AUDITOR GENERAL'S REPORT 213 

would eliminate the considerations of the Pension Board which is now responsible for 
establishing reasons for release. The Committee requested the Auditor General to advise 
it in due course of any action taken to revise the present system. See paragraph 85 of 
this Report. 

22. overlapping of pension benefits. The Committee was pleased to hear from the Deputy 
Minister of National Defence that it is his intention when the Canadian Forces Super- 
annuation Act is to be amended to bring this matter to the attention of the Ministers 
with a view to preventing future incidents of this kind. The Committee requested the 
Auditor General to keep it informed as to progress made. 

23. advances to the exchange fund account. The Committee recommended that in the 
event the holdings of the Account drop in value by an amount sufficient to eliminate 
the surplus of $30.3 million at December 31, 1963 and create a deficit in the Account, 
the Minister of Finance of the day give immediate consideration to the elimination of 
the deficit in order to maintain the full value of the advances made from the Consoli- 
dated Revenue Fund to the Exchange Fund Account. See paragraph 228 of this Report. 

24. errors in public service superannuation account pension and contribution 
calculations. The Committee expressed concern that this matter (first drawn to the 
attention of the Department of Finance by the Auditor General in 1959), which it 
regards as being very serious, is taking so long to be corrected. It requested the Auditor 
General to keep it fully informed. See paragraph 64 of this Report. 

25. pension increased by payment of two salaries. The Committee stated it expects to 
see suitable amending legislation introduced in due course to protect the Public Service 
Superannuation Account from excessive annuity charges and requested the Auditor 
General to keep it fully informed. 

26. RECIPROCAL TRANSFER AGREEMENTS FOR SUPERANNUATION BENEFITS. The Committee 

suggested that when the Public Service Superannuation Act is next amended a suitable 
amendment be introduced which will provide for the disposition of any excess amounts 
of contributions in reciprocal transfer cases. 

27. INTEREST CHARGES ON LOANS TO THE NATIONAL CAPITAL COMMISSION. The Committee 

recorded how, in its Fourth Report 1963, it had expressed the view that since outlays on 
properties such as those held by the National Capital Commission are expenditures of 
the Crown rather than income-producing investments, it would be more realistic were 
Parliament asked to appropriate the funds in the years in which properties, which are 
not to be specifically held for resale, are to be acquired, instead of leaving the expenditure 
involved in the repayment of loans to be absorbed in future years. 

After hearing further evidence, the Committee stated it continues to hold the view that 
outlays on properties such as these are expenditures of the Crown rather than income- 
producing investments, and that Parliament should be asked to appropriate the funds 
in the years in which the properties are to be acquired. It pointed out that if this were 
done it would eliminate the need for Parliament to appropriate funds to the Commission 
to service loans made under the present practice. The Committee repeated its request 
that the Department of Finance review the existing practice with the National Capital 
Commission with a view to placing the financing of the Commission on a more realistic 
basis. See paragraphs 167 and 202 of this Report. 



214 AUDITOR GENERAL'S REPORT 

The Deputy Minister of Public Works advised on February 24, 1965 that the National 
Capital Commission is fully conversant with the various facets of this problem and is 
awaiting further directions from the Department of Finance in this regard. The Com- 
mission understands this recommendation places the initiative for the review on the 
Department of Finance. 

28. accounts receivable. The Committee expressed concern that weaknesses exist in the 
internal control with respect to accounts receivable and suggested that the Treasury 
Board have the matter studied with a view to ensuring that amounts due to the Crown 
are adequately recorded, that an accounts receivable control system is instituted and 
that collection procedures are tightened up and firmly enforced. See paragraph 168 of 
this Report. 

29. indirect compensation to chartered banks. The Committee recalled that, in its 
Fourth Report 1963, it had advised the House that it was in agreement with the view 
of the Auditor General that the arrangement existing between the chartered banks and 
the Government of Canada does constitute indirect compensation to the chartered banks 
and that this may be construed as being contrary to the intent of section 93(1) of the 
Bank Act. 

The Committee reiterated its belief that, if the banks are to be compensated for services 
provided to the Crown, consideration should be given to the most equitable manner in 
which this may be done, with statutory sanction being given by means of an appropriate 
amendment to the Bank Act, possibly at the time of the decennial revision in 1965. 
See paragraph 62 of this Report. 

30. the Canada council. The Committee stated that, in its Fourth Report 1963, it had 
noted that the Council proposed to accept the 1956 census as a basis for distribution of 
the profits realized and interest earned on the University Capital Grants Fund and also 
to accept the "hotch-pot" or trust fund approach to this distribution. Because of doubts 
expressed by other legal counsel and the Auditor General as to the propriety of applying 
these bases, the Committee had postponed further consideration of the matter. 

The Committee was informed that in the interim the Council had proceeded to allocate 
and distribute funds resulting from profits realized and interest earned on the foregoing 
bases. The Committee regarded the approach as a reasonable one, but because of the 
conflicting views held as to whether the action taken is ultra vires of subsection (2) (6) 
of section 17 of the Canada Council Act, recommended that steps be taken to seek 
amending legislation to provide clear authority for the Council to use the 1956 census 
and the "hotch-pot" approach in the distribution of interest and profits in respect of 
the University Capital Grants Fund. See paragraph 225 of this Report. 

Seventh Report 1964 — presented to the House on December 7, 1964 
Surplus Assets Disposal 

31. The Committee expressed deep concern that while physical inventory quantities are 
maintained and are readily available in respect of all of the equipment and supply items 
maintained by the Department of National Defence, the purchase cost of the materials, 
including supplies and equipment stores at supply depots and at repair and overhaul 
contractors' establishments, is not available. In accordance with sound business prac- 



AUDITOR GENERAL'S REPORT 215 

tice, it would be reasonable to ascertain, for the purposes of financial management 
control, the value of the inventory and what it costs to store and handle such an 
inventory. 

32. While the Committee expressed its satisfaction with the supervisory methods exercised 
by the Department of National Defence over its physical inventory quantities, it did 
not see how the Department can perform a really effective job of inventory manage- 
ment without knowing the value of the inventory and what it costs to carry it. Further- 
more, the lack of any cost or carrying values has rendered it difficult for the Committee 
either to form any reasonable estimate of the value of the supplies on hand or to deter- 
mine what would seem to be a reasonable inventory level for a department the size of 
the Department of National Defence to maintain for the requirements of the three 
Armed Forces. In this connection it should be borne in mind that appropriations ap- 
proved for the Department of National Defence have aggregated an average of $1,646 
million annually, of which $421 million related to equipment, materials and supplies, 
over the past five years so that it does not seem unreasonable for the Committee to 
expect that some maximum dollar figure of values should be established to govern the 
size of the inventory. It was explained to the Committee by the officials of the Depart- 
ment of National Defence that the Department has been studying this matter for some 
time and the hope is entertained that it will be possible in due course to record the 
dollar value of this stock subject to the extent to which the recommendations of the 
Royal Commission on Government Organization are implemented in the years ahead. 
The Committee found general agreement that the determination of this would con- 
tribute materially to an improvement in the management of an inventory of this size. 

33. The Committee made the following recommendations: 

(1) that every effort be made by the executive to introduce at as early a date as possible an effective 
accounting change in the operations of the Department of National Defence whereby inventory 
quantities can be costed on acquisition and recorded in the quarterly or periodic inventory listings 
made by the Department; 

(2) that effective with the fiscal year 1964-65 the Department of National Defence issue a statement 
listing or summarizing all material declared surplus during the year showing, to the extent it can be 
determined, its original cost and the value obtained on disposal of this equipment by Crown Assets 
Disposal Corporation; also the value obtained for other surplus material, etc., declared without 
value to the Corporation, and that such a statement be placed in the Public Accounts of Canada; 

(3) that the preparation of a statement similar to the foregoing be made a requirement for each depart- 
ment and agency of the Government declaring material surplus for the purpose of disposing of such 
material during each fiscal year and that such statements likewise be placed in the Public Accounts 
of Canada effective with the fiscal year 1964-65; see paragraph 10 of this Report. 

(4) Implemented 

Eighth Report 1964 — presented to the House on December 7, 1964 

34. hospital construction grants. The Committee stated it shared the opinion of the 
Deputy Minister of National Health and the Auditor General that, since it is inherent 
in the Hospital Construction Program that commitments be entered into for future 
years as well as the current year, the financing of the program be placed on a period-of- 
years basis with parliamentary control being exercised over the total commitments that 
may be entered into. 



216 AUDITOR GENERAL'S REPORT 

35. awards under the pension act. The Committee made the following recommendations 
(see paragraph 138 of this Report) designed to clarify the Act: 

(a) that the extent of the powers delegated to the Commission under section 25 of the Act, "to grant a 
compassionate pension, allowance or supplementary award in any case that it considers to be specially 
meritorious" where the applicant is otherwise unqualified to receive such an award, be clarified by 
defining the term "specially meritorious"; 

(b) that the ambiguity under the Act whereby section 40 (2) appears to contemplate that a pension in 
respect of death of a member of the forces be limited to a single class of recipient whereas other 
sections of the Act provide that payments in respect of a death may be made concurrently to a 
widow (section 37), children (section 26) and parents (section 38), be eliminated; 

(c) that the inconsistency apparent under section 38 of the Pension Act where pensions awarded to 
widowed mothers under subsection (3) thereof, which requires that the parent must be incapacitated 
by mental or physical infirmity from earning a livelihood, are by reason of subsection (7) being 
continued in payment even though the widowed mothers have subsequently been able to undertake 
full-time employment, be removed; 

(d) that consideration be given to adding a section to the Pension Act similar to section 18 of the War 
Veterans Allowance Act to deal with cases where it appears to the Commission that there had been 
a deliberate disposal of property for the purpose of qualifying for a dependent parent award; 

(e) that, having regard for section 40 (1) of the Pension Act which provides that no person shall be 
awarded more than one pension in respect of death, the Commission reconsider the legality of its 
decision to permit an award to a dependent parent of a second pension in respect of the death of a 
child after the rights to a pension awarded in respect of the death of another child have been lost 
under the terms of section 45 (2) of the Act. 

36. war veterans allowances. The Committee made the following recommendations 
(see paragraph 139 of this Report): 

(a) the Committee, after taking note of the increasing number of overpayments arising mainly from 
veterans making false or misleading statements, and of the fact that, although 80 such cases had 
been referred to the Board by the Auditor General in 1962 and 1963, in none of these had legal action 
been instituted, recommends that all cases of deliberate deception which come to notice be vigorously 
prosecuted; 

(b) that the Act should be amended to recognize mortgages receivable and agreements for sale as either 
personal property or an interest in real property. In the meantime, where it appears to the Board 
that the terms of a mortgage receivable or agreement for sale are unrealistic in relation to the life 
expectancy of the individual and the going market rates, the Board should deem the return from 
these assets to be at a reasonable monthly rate; 

(c) that in cases where the presence of a child is the reason for an award at married rates, the income of 
the child, except income specifically exempted under the Act, be taken into account in determining 
the amount of the award. 

37. amendments to the customs act and the excise tax act. The Committee made the 
following recommendations (see paragraph 90 of this Report): 

(a) Implemented 

(6) Sales of goods unclaimed at Customs — 

that the practice of the Department in waiving all or part of whatever storage charges are 
applicable in order that at least the duties may be recovered be given statutory sanction by i 
means of an appropriate amendment to section 23 of the Customs Act. 






(c) Implemented 

(d) Determination of 'sale price' for sales tax purposes — 

that an amendment be made to the Excise Tax Act designed to give statutory sanction to the 
existing scheme of valuation followed by the Department of National Revenue in authorizing 
manufacturers by regulation to compute the sales tax on less than the actual sale price. 






i; 



AUDITOR GENERAL'S REPORT 217 

38. general election expenditures. The Committee noted the practice followed over the 
years of making accountable advances to election officers for the payment of office 
rental and various other expenses incurred in connection with an election. It noted that 
the Chief Electoral Officer in his report to the Speaker of the House of Commons on the 
1962 general election had recommended that the Canada Elections Act be amended 
to provide for the payment of an accountable advance to an election officer, limited to an 
amount which might be necessary to defray such office and other incidental expenses 
as may be approved under the tariff of fees, costs, allowances and expenses. 

The Committee recorded its support of this recommendation by the Chief Electoral 
Officer and expressed the hope that the amendment will be considered by Parliament 
at an early date. 

39. accounts not examined by the auditor general. The Committee noted that although 
this officer of Parliament is the auditor of the majority of the Crown corporations, it has 
not been the practice of successive governments to appoint the Auditor General the 
auditor of seven of the Crown corporations and other public instrumentalities and that 
therefore their accounts have not been examined and reported upon by him to the House. 
The Committee expressed its belief that it would be in the best interests of Parliament 
in its control of public funds were the Auditor General empowered to audit the accounts 
of all of the Crown corporations, agencies and public instrumentalities owned or con- 
trolled by the Crown, wherever they may be, and to report thereon to the House. 

The Committee therefore recommended (see paragraph 188 of this Report) : 

(a) that the Auditor General be appointed either the sole auditor or a joint auditor pursuant to sub- 
section (2) of section 77 of the Financial Administration Act, of each Crown corporation, agency 
and other public instrumentality in respect of which other auditors have been or may be appointed; 

(6) that in cases where such other auditors are appointed, they function as joint auditors with the 
Auditor General, and that such appointments be made by the government acting on the advice of 
the Auditor General. 

40. audit of the office of the auditor general. The Committee noted that pursuant to 
the provisions of section 75 of the Financial Administration Act, an officer of the public 
service nominated by the Treasury Board examines and certifies to the House of 
Commons in accordance with the outcome of his examinations the receipts and dis- 
bursements of the Office of the Auditor General. 

The Committee recommended that this section of the Financial Administration Act be 
amended to provide that the receipts and disbursements of the Office of the Auditor 
General be examined by a qualified person nominated by Parliament through its 
Standing Committee on Public Accounts, and that such person should report thereon 
to the House of Commons. See paragraph 6 of this Report. 



218 



AUDITOR GENERAL'S REPORT 



APPENDIX 2 



SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE, 
BY DEPARTMENTS, CROWN CORPORATIONS AND OTHER INSTRUMENTALITIES 

Authorized and on Strength as at March 31, 1965 
(with comparative figures as at March 31, 1964) 



Employees authorized 



March 
1964 



March Increase 
1965 (Decrease) 



Name of Department, Crown Corporation 
or Other Instrumentality 



Employees on strength 



March 
1964 



March Increase 
1965 (Decrease) 



445 


457 


12 


4,403 


3,972 


(431) 


2,123 


2,097 


(26) 


1,584 


1,662 


78 


1,245 


1,238 


(7) 


55 


75 


20 


929 


879 


(50) 


193 


185 


(8) 


0,977 


10,666 


urn 


16 


16 


— 


180 


221 


41 


40 


39 


(1) 


31 


20 


(ID 


203 


221 


18 


217 


213 


(4) 


1,987 


2,008 


21 


2,910 


3,993 


1,083 


6,S17 


6,4S5 


1,118 



11 


11 


121 


134 


530 


476 


— 


145 


89 


114 


47 


17 


43 


39 


841 


936 


92 


12 


672 


867 


61 


155 


709 


901 


289 


521 


178 


160 


814 


798 


470 


491 


113 


111 


106 


102 


8,604 


4,118 



13 
(54) 
145 

25 
(30) 

(4) 

95 



(80) 
195 
94 
192 
232 

(18) 
(16) 

21 

(2) 

(4) 
614 



DEPARTMENTS (Note 1)— 

Agriculture — 

Administration Branch 

Research Branch 

Production and Marketing Branch 

Health of Animals Branch 

Prairie Farm Rehabilitation Administration 

Prairie Farm Assistance Administration 

Board of Grain Commissioners 

Canadian Government Elevators 

Atomic Energy Control Board 

Auditor General's Office 

Board of Broadcast Governors 

Chief Electoral Officer 

Citizenship and Immigration — 

Administration 

Citizenship Branch 

Immigration Branch 

Indian Affairs Branch 



The increase in employees authorized and on 
strength shown for the Indian Affairs Branch is 
due primarily to casual employees paid from funds 
provided for departmental projects having been 
omitted from the 1964 figures. 

Civil Service Commission — 

Commissioners and Staff 

Executive Secretary (Administration and Personnel). 

Operations Branch 

Bureau of Classification and ClassiBcation Branch. . . 

Advisory Services and Appeals Branch 

Pay and Standards Branch 

Pay Research Bureau 

Defence Production — 

Deputy Minister's Office 

Finance and Administration Branches 

International Programs 

Operations Branches 

Canadian Government Supply Branches 

Directorate of Printing — 

Finance and Administration 

Production Services (Main Plant) 

Production Services (Outside Plants) 

Emergency Measures Organization 

Emergency Measures College (formerly Civil De-. . 

fence College) 



386 
3,284 
1,899 
1,414 

993 
53 

817 

169 
9,015 

14 

160 

36 

30 



175 

182 

1,726 

2,698 

4,781 



419 
3,301 
1,950 
1,525 

991 
74 

813 

165 
9,238 

16 

177 

36 

20 



189 

209 

1,761 

3,856 

6,015 



10 


9 


87 


127 


480 


488 


— 


115 


77 


98 


36 


10 


44 


40 


734 


887 


83 


10 


604 


759 


55 


137 


637 


806 


260 


422 


168 


149 


720 


716 


408 


444 


91 


85 



101 



,124 



S,f 



AUDITOR GENERAL'S REPORT 
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued 



219 



Employees authorized 



March March Increase 
1964 1965 (Decrease) 



Name of Department, Crown Corporation 
or Other Instrumentality 



Employees on strength 



March 
1964 



March 
1965 



Increase 
(Decrease) 



2,570 


33 


182 


72 


12 


— 


2,764 


105 



422 



30 



13 
14 
45 
43 
52 
38 
69 
53 
42 
38 
38 
47 
57 
35 
55 
6S9 

112 



94 



157 


2 


402 


17 


2,974 


(328) 


373 


31 


118 


(32) 


427 


(2) 


31 


(5) 


374 


53 


203 


(1) 


44 


9 


22 


— 


— 


(19) 


4 


— 


10 


— 


6,561 


(181) 


90 


(1) 


192 


6 


967 


4 


332 


4 


259 


28 


770 


54 


2,610 


95 


217 


25 


548 


72 


668 


22 


204 


— 


39 


(25) 


26 


12 


1,702 


106 



13 



497 



DEPARTMENTS— Continued 

External Affairs — 

External Affairs 

External Aid Office 

International Joint Commission 

Finance — 

Administration 

Comptroller of the Treasury — 

Headquarters 

Regional Offices 

Treasury Offices 

Audit Services Branch 

Cheque Adjustment Division 

Central Services Branch 

Securities Deposit Division 

Royal Canadian Mint 

Superannuation Branch 

Tariff Board 

Guaranteed Loans Division 

Government Switchboard 

Inspector General of Banks 

Municipal Development and Loan Board 

Fisheries — 

Administration 

Field Service Administration 

Conservation and Development Services 

Inspection Services 

Miscellaneous Services 

Fisheries Research Board 

Forestry — 

Administration Branch 

Forest Research Branch 

Forest Entomology and Pathology Branch 

Forest Products Research Branch 

Maritime Marshland Rehabilitation Administration 
Agricultural Rehabilitation and Development 

Governor General and Lieutenant-Governors 

Industry — 

Administration 

Minister's Office 

Deputy Minister's Office 

Aircraft Branch 

Area Development Agency 

Chemicals Branch 

Clothing and Textiles Branch 

Electrical and Electronics Branch 

Food Products Branch 

Machinery Branch 

Materials Branch 

Mechanical Transport Branch 

National Design Branch 

Program Advisory Group 

Shipbuilding Branch 

Wood Products Branch 

Insurance 



2,358 
98 
11 

2,467 



286 



16 



125 



125 
100 



2,435 

167 

11 

2,61$ 



339 



122 


135 


341 


401 


2,980 


2,966 


324 


330 


126 


111 


384 


417 


26 


29 


310 


362 


174 


183 


32 


42 


19 


19 


19 


— 


4 


4 


7 


8 


6,154 


6,346 


76 


70 


164 


173 


716 


806 


317 


311 


196 


224 


655 


644 


2,124 


2,228 


167 


202 


453 


521 


617 


653 


187 


192 


45 


39 


11 


22 


1,480 


1,629 



29 



10 
14 
31 
33 
22 
22 
43 
21 
21 
29 
16 
20 
32 
19 
20 
S5S 

104 



77 
69 

146 



53 

13 
60 
(14) 

6 
(15) 
33 

3 
52 

9 
10 

(19) 

1 

192 



(6) 
9 

90 
(6) 
28 

(11) 

104 



35 

68 

36 

5 

(6) 
11 
149 

13 



220 



AUDITOR GENERAL'S REPORT 
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued 



Employees authorized 



March 
1964 



March Increase 
1965 (Decrease) 



Name of Department, Crown Corporation 
or Other Instrumentality 



Employees on strength 



March 
1964 



March Increase 
1965 (Decrease) 



356 

144 

3,125 

$,625 



225 
150 
77 
15 
41 
12 
55 
173 
21 



520 
1,290 
3,356 
3,619 
1,570 
1,207 
IS, SSI 



191 

945 

61 

1,197 



271 
712 

888 

439 

668 

91 

167 

57 

19 

S,S12 



685 
1,420 
13,147 
18,620 
16,216 
3,243 
SS,SS1 



378 

144 

3,699 

4, SSI 



273 
146 
57 
15 
43 
12 
56 
171 
21 



630 
1,192 
3,174 
3,469 
1,526 
1,188 
11.97S 



204 

978 

62 

1,S44 



360 

734 

883 

457 

647 

111 

179 

61 

17 

3,449 



716 
1,308 
12,254 
17,731 
15,179 
2,881 
50,069 



69 



73 



22 

574 

596 



48 

(4) 

(20) 



1 
(2) 



110 

(98) 

(182) 

(150) 

(44) 

(19) 

(S58) 



13 
33 

1 



89 

22 

(5) 

18 
(21) 

20 

12 
4 

(2) 
1S7 



31 
(112) 
(893) 



(1,037) 

(362) 

(8,862) 



DEPARTMENTS— Continued 



Justice — 

Administration 

National Parole Board . 
Penitentiaries 



Labour — 

Administration 

Economics and Research Branch 

Industrial Relations Branch 

Civilian Rehabilitation Branch 

Special Services Branch 

Manpower Consultative Service 

Technical and Vocational Training Assistance Branch 

Annuities Branch 

Accident Prevention and Compensation Branch 



Unemployment Insurance Commission- 
Head Office 

Atlantic Region 

Quebec Region 

Ontario Region 

Prairie Region 

Pacific Region 



Legislation — 

Senate 

House of Commons 

Library of Parliament. 



Mines and Technical Surveys — 

Administration 

Surveys and Mapping Branch. . . 

Marine Sciences Branch 

Geological Survey 

Mines Branch 

Geographical Branch 

Observatories Branch 

Polar Continental Shelf Project. 
Dominion Coal Board 



National Defence (Civilian Staffs) — 

Departmental Administration 

Inspection Service 

Royal Canadian Navy 

Canadian Army 

Royal Canadian Air Force 

Defence Research Board 



The decreases in employees authorized and 
on strength at March 31, 1965 result in part 
from the takeover by the Department of 
Public Works effective April 1, 1964 of the res- 
ponsibility for buildings and maintenance at Fort 
Pepperell (185 positions) and Fort Churchill 
(478 positions) and for operation and mainte- 
nance of the Northwest Highway System 
(751 positions), a total of 1,414 positions of 
which 1,174 were filled at the year end. 

National Gallery of Canada 



318 
111 

3,062 

8,491 



208 

124 

71 

11 

37 

36 

160 

21 



414 
1,206 
3,087 
3,375 
1,485 
1,125 
11,860 



191 

945 

59 

1,195 



240 

647 

833 

418 

604 

70 

148 

51 

17 

5,028 



590 
1,193 
11,776 
16,432 
14,897 
2,802 
47,690 



342 

114 

3,330 

3,786 



249 

128 

53 

14 

40 

8 

54 

157 

20 



515 
1,124 
2,928 
3,185 
1,434 
1,098 
11,007 



191 

950 

60 

1,801 



341 

686 

788 

443 

613 

90 

171 

54 

17 



55 



3,1. 



560 
1,124 
11,085 
15,207 
13,858 
2,625 
44,459 



64 



AUDITOR GENERAL'S REPORT 
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued 



221 



Employees authorized 



March March Increase 
1964 1965 (Decrease) 



Name of Department, Crown Corporation 
or Other Instrumentality 



Employees on strength 



March 
1964 



March Increase 
1965 (Decrease) 



392 


12 


544 


4 


3,399 


275 


635 


113 


897 


87 


6,867 


491 


1,394 


(40) 


1,929 


(23) 



226 
277 



85 

2,476 
91 



186 
510 
162 
663 
62 
4,738 



1,019 

949 

558 

27,919 

30,445 



137 

7 
144 



213 
159 

372 



(.63) 



713 


55 


312 


45 


1,185 


316 


149 


(1) 


5,794 


(571) 


8, IBS 


(156) 


622 


31 


2,576 


979 


5,649 


(351) 


22 


— 



659 



13 

(2) 



29 

(13) 
(20) 



(10) 
65 
(3) 

77 

136 



(112) 

89 

(23) 

1,022 

976 



11 
// 



24 
38 



DEPARTMENTS— Continued 

National Health and Welfare — 
Departmental Administration 

Health Services 

Medical Services 

Food and Drug Services 

Welfare Services 



National Research Council, including the Medical Re 
search Council- 
Administration and Services 

Scientific and Engineering Divisions 

Medical Research Council 

National Revenue — Customs and Excise — 

General Administration , 

Checking, Refunds and Drawbacks 

Excise Duty and Excise Tax 

Customs Inspection and Investigation 

Ports 

National Revenue — -Taxation Division — 

Head Office 

Data Centre (Ottawa) 

District Offices 

Tax Appeal Board 

Northern Affairs and National Resources — 

Departmental Administration 

Water Resources Branch 

National Parks Branch — 

Administration 

Operation and Maintenance of National Parks and 

Historic Sites and Monuments 

Canadian Wildlife Services 

Northern Administration Branch — 

Administration 

Education Division 

Welfare and Industrial Division 

Northwest Territories and Other Field Services 
Yukon Territory 

Post Office- 
Headquarters 

District Offices 

Railway Mail Service 

Staff Post Offices 

Privy Council — 

Privy Council Office 

Prime Minister's Residence 

Public Archives and National Library — 

Public Archives 

National Library 



335 
473 

2,748 
474 
770 

4,800 



1,271 

1,836 

6 

3,113 



600 
262 
821 
147 
5,855 
7,685 



500 
1,817 

5,478 

20 

7,815 



192 
235 



46 



376 
499 

3,170 
599 
830 

6,474 



1,322 

1,915 

6 

3,243 



656 

285 

1,113 

146 

5,475 

7,675 



557 

2,029 

5,390 

21 

7,997 



208 
256 



74 



2,056 


2,265 


90 


79 


156 


170 


450 


476 


132 


132 


493 


613 


45 


59 


3,895 


4,332 


932 


943 


856 


926 


498 


444 


26,707 


27,683 


28,993 


29,996 


117 


116 


7 


6 


124 


122 


134 


180 


67 


104 


201 


284 



41 
26 

422 

125 

60 

674 



51 

79 

ISO 



56 
23 

292 
(1) 

(380) 
(10) 



57 

212 

(88) 

1 

182 



16 
21 



28 

209 
(ID 



14 
26 

120 

14 
437 



11 

70 

(54) 

976 



(1) 
(1) 
(B) 



46 
37 
83 



222 



AUDITOR GENERAL'S REPORT 
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued 



Employees authorized 



March 
1964 



March 
1965 



Increase 
(Decrease ) 



Name of Department, Crown Corporation 
or Other Instrumentality 



Employees on strength 



March 
1964 



March 
1965 



Increase 
(Decrease) 



30 

159 

189 



1,876 



682 



2,428 

2,075 

498 



32 

164 

196 



1,917 



2,798 


2,619 


4,044 


4,436 


935 


744 


177 


940 


168 


167 


9,998 


10,823 



649 


647 


1,009 


1,009 


13 


12 


1,671 


1,668 


63 


75 


33 


36 


360 


399 


137 


134 


52 


53 


402 


385 


8 


14 


99 


100 


18 


18 


1,172 


1,214 


521 


593 


624 


667 


446 


484 


52 


183 


172 


251 


12 


56 


2,227 


2,350 


73 


86 


4,1*7 


4,670 



694 



2,108 

2,056 

478 



41 



(179) 
392 

(191) 
763 
(1) 



(2) 

(1) 
(3) 



12 

3 
39 
(3) 

1 
(17) 

6 

1 

42 



72 
43 
38 

131 
79 
44 

123 
13 

64$ 



12 



(320) 
(19) 
(20) 



DEPARTME NTS— Continued 

Public Printing and Stationery — 
Publications Branch — 

Departmental Administration 

Distribution of official documents including print 
procurement 

Public Works — 

General Administration 

Maintenance and Operation of Public Buildings and 
Grounds — 

Ottawa 

Other than Ottawa 

Harbours and Rivers Engineering Services 

Development Engineering Services 

Testing Laboratories 

The increases in employees authorized and 
on strength at March 31, 1965 reflect the take- 
over from the Department of National Defence 
effective April 1, 1964 of the responsibility for 
buildings and maintenance at Fort Pepperell 
(185 positions) and Fort Churchill (478 posi- 
tions) and for operation and maintenance of the 
Northwest Highway System (751 positions), a 
total of 1,414 positions of which 1,174 were filled 
at the year end. 

Royal Canadian Mounted Police (Civilian Staffs) — 

Headquarters 

Land, Air and Training Divisions 

Marine Services 

Secretary of State — 

Departmental Administration 

Companies and Corporations Branch 

Bureau for Translations 

National Museum 

Trade Marks Office 

Patent and Copyright Office 

Atlantic Development Board 

Economic Council of Canada 

Office of the Representation Commissioner 

Trade and Commerce — 

Departmental Administration 

Trade Commissioner Service 

Standards Branch 

Exhibitions Branch 

Canadian Government Travel Bureau 

Canadian Government Participation 1967 Exhibition. 

Dominion Bureau of Statistics 

National Energy Board 

Transport — 
Departmental Administration 

Marine Services- 
Marine Administration and Marine Works 

Marine Operations 

Marine Regulations 



28 

139 

167 



1,654 



2,579 

3,616 

803 

177 

147 

8,976 



596 



2,109 

1,869 

387 



30 

154 

184 



1,708 



2,308 

3,998 

686 

794 

152 

9,646 



561 


621 


963 


957 


13 


10 


1,637 


1,688 


60 


76 


25 


35 


314 


356 


104 


117 


45 


53 


332 


367 


8 


13 


61 


84 


15 


16 


964 


1,117 


477 


526 


623 


656 


444 


468 


46 


169 


174 


223 


3 


46 


2,099 


2,240 


64 


74 


3,930 


4,402 



634 



2,127 

1,879 

406 



AUDITOR GENERAL'S REPORT 
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued 



223 



Employees authorized 



March 
1965 



Increase 
(Decrease) 



Name of Department, Crown Corporation 
or Other Instrumentality 



Employees on strength 



March 
1964 



March 
1965 



Increase 
(Decrease) 



479 
1,715 
2,380 

575 
3,024 
2,407 

93 

178 

28 

16,215 



1,355 
10,824 

789 
359 
680 

14,007 



217,507 



11,909 



15 
2,420 
397 
347 
293 
139 
3,611 



1,185 



537 

316 

7,319 

15 

75 

176 



(ID 
36 
(275) 
(144) 
(55) 
10 



2 

(781) 



(99) 

(311) 

(19) 

(21) 

(110) 

(560) 



1,432 



5 
64 
36 

106 
68 
30 

S09 



(297) 



(21) 

11 

215 

2 
12 

219 



DEPARTMENTS— Concluded 

Transport — Concluded 
Air Services — 

Administration 

Control of Civil Aviation and Air Traffic Control 

Airports and Property Management 

Construction Branch 

Telecommunications and Electronics Branch 

Meteorological Branch 

Air Transport Board 

Board of Transport Commissioners 

Canadian Maritime Commission , 

Veterans Affairs — 

Administration 

Treatment Services 

Welfare Services 

Pensions Administration 

Veterans' Land Act Administration 

Total, Departments 



CROWN CORPORATIONS (Notes 1 and 2) 

Air Canada — 

Operations Department- 
Flying personnel 

Other personnel 

Sales Department 

Purchases and Stores Department 

Finance Department 

AllOther 

Atomic Energy of Canada Limited — 

Head Office 

Chalk River Nuclear Laboratories 

Commercial Products Division 

Whiteshell Nuclear Research Establishment.. 

Power Projects 

Temporary — Construction workers, nurses, etc 

Canadian Arsenals Limited — 

Head Office 

Filling Division 

Explosives Division 

Dominion Arsenals Division 

Small Arms Division 

Instruments and Electronics Division 

Canadian Broadcasting Corporation — 

Head Office 

National Engineering 

Regional Offices 

Foreign Offices 

Northern and Armed Forces Services 

International Services 



420 


438 


1,514 


1,528 


2,170 


2,336 


625 


660 


2,792 


2,876 


1,992 


2,162 


84 


87 


167 


171 


26 


28 


14,751 


15,332 


1,259 


1,266 


10,528 


10,397 


714 


734 


338 


332 


657 


637 


13,496 


13,366 



196,626 



1,254 

6,180 

2,638 

556 

474 

321 

11,423 



10 
2,227 
351 
181 
227 
109 
3,105 



76 
388 
274 
363 
221 
160 



500 

277 

6,907 

15 

81 

159 

7,939 



200,798 



1,408 

6,360 

2,758 

555 

492 

336 

11,909 



15 
2,258 
397 
312 
293 
139 
3,414 



35 

296 
216 
433 
205 

1,185 



491 

274 

7,201 

15 

84 

173 

8,238 



18 
14 

166 
35 
84 

170 

3 
4 
2 

681 



7 
(131) 
20 
(6) 

(20) 
(ISO) 



4,172 



154 

180 

120 

(1) 

18 

15 

486 



5 
31 
46 

131 
66 
30 

309 



(41) 

(92) 

(58) 

70 

(16) 

(160) 

(297) 



(9) 
(3) 
294 

3 
14 

299 



224 



AUDITOR GENERAL'S REPORT 
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Continued 



Employees authorized 



March 
1964 



March 
1965 



Increase 
(Decrease) 



Name of Department, Crown Corporation 
or Other Instrumentality 



Employees on strength 



March 
1964 



March 
1965 



Increase 
(Decrease) 



11 


15 


24 


47 


69 


133 


167 


247 


75 


57 


— 


93 


63 


108 





5 


— 


15 


— 


11 


409 


731 


87 


2 



89, 333 



534 

4 
50 



,076 
97 



U6 
33 



767 
61 



90,213 



592 

4 
85 



106 



197 
33 



785 
71 



51 


54 


211 


242 


12 


11 


25 


26 


234 


258 


636 


694 



4 
23 

64 
80 
(18) 
93 
45 

5 
15 
11 



(85) 



35 



(40) 
9 



(49) 



18 
10 



3 
31 
(1) 

1 
24 
68 



CROWN CORPORATIONS (Continued) 

Canadian Corporation for the 1967 World Exhibition 

Administrative — 

Executive 

Secretariat 

Finance and Administration 

Installations , 

Exhibitors , 

Public Relations , 

Operations , 

Operating — 

Finance and Administration , 

Installations , 

Operations , 

Canadian Commercial Corporation , 

Canadian National Railways — 

General 

Road Maintenance 

Equipment Maintenance 

Transportation 

Other Operations 

Canadian Overseas Telecommunication Corporation- 
Administrative 

Head Office Engineering 

Traffic Representatives 

Operating 

Canadian Patents and Development Limited — (Staff 
on loan from National Research Council) 

Centennial Commission 

Central Mortgage and Housing Corporation — 

Regular 

Contract and casual 

Crown Assets Disposal Corporation 

Defence Construction (1951) Limited — 

Administration 

Engineers 

Technical 

Eldorado Aviation Limited 

Eldorado Mining and Refining Limited — 

Head Office and General Administration 

Beaverlodge Division 

Refinery and Sales 

Research and Development 

Export Credits Insurance Corporation 

Farm Credit Corporation — 

Executive Officers 

Branch Managers, Assistant Branch Managers, Lend 

ing Officers 

Credit Supervisors, Credit Advisors , 

Solicitors, Notaries 

Administrative, Accounting, Securities Officers 

Office Staff , 



11 


15 


23 


36 


68 


114 


125 


191 


59 


50 


— 


57 


26 


78 


._ 


3 


— 


2 


312 


646 


87 


2 


10,996 


11,321 


16,564 


15,317 


17,843 


18,766 


32,812 


34,992 


11,118 


9,817 


89,333 


90,213 


87 


97 


38 


57 


11 


12 


398 


426 


6S4 


692 


4 


4 


46 


66 


1,992 


1,968 


84 


68 


2,076 


2,036 



97 



33 



61 



106 



121 


103 


58 


43 


67 


51 


246 


197 



33 



42 


37 


520 


528 


142 


157 


63 


63 


767 


785 



67 



48 


48 


195 


218 


9 


11 


24 


22 


219 


227 


498 


629 



AUDITOR GENERAL'S REPORT 
SUMMARY OF EMPLOYEES OF THE PUBLIC SERVICE— Concluded 



225 



Employees authorized 



March Increase 
1965 (Decrease) 



Name of Department, Crown Corporation 
or Other Instrumentality 



Employees on strength 



March 
1964 



March 
1965 



Increase 
(Decrease) 



20 



2, 246 



245 
38 



1,442 
2,140 
3,582 



1,466 
18 



129,014 



1,072 

32 

580 

10 

522 

918 



3,134 



349,655 



(2) 



36 


8 


46 


4 


63 


4 


513 


(2) 


149 


3 


807 


17 



(39) 

36 
1 

106 
98 

204 

66 



2,206 



(8) 

(2) 

(34) 

23 
54 



33 



3,671 



CROWN CORPORATIONS (Concluded) 

The National Battlefields Commission 

National Capital Commission — 

Administrative and Accounting 

Planning, Property Acquisition and Management . 
Landscape Architecture, Engineering, Construction 

and Maintenance 

Prevailing rate — permanent and seasonal 

Construction employees for special works 

National Harbours Board — 

Head Office 

Harbours and Elevators — 

Salaried 

Prevailing rate 

Northern Canada Power Commission — 

Head and Edmonton Offices 

Field Locations 

Northern Transportation Company Limited 

Polymer Corporation Limited and Subsidiary Com- 
panies — 

Salaried 

Hourly rate 

The St. Lawrence Seaway Authority — 

Administrative and Engineering 

Operations 

Maintenance 

The Seaway International Bridge Corporation, Ltd.. . 
Total, Crown Corporations 

OTHER INSTRUMENTALITIES— (Notes 1 and 2) 

Bank of Canada 

The Canada Council 

The Canadian Wheat Board 

The Custodian 

Industrial Development Bank 

National Film Board 

Total, Other Instrumentalities 

Total, Departments, Crown Corporations and 
other Instrumentalities 



22 



26 
34 

55 
277 
146 



57 

836 
1,392 

2,285 



39 
170 



37 



1,298 
2,042 
3,340 



275 

650 

485 

1,410 

18 



125,902 



3,017 



325,545 



20 



32 

43 

57 
289 
149 

570 



61 

818 
1,367 

2,246 

42 
203 

245 

38 



1,367 
2,091 

3,458 



344 

694 

428 

1,466 

18 



127,983 



080 


1,072 


34 


32 


614 


580 


10 


10 


499 


522 


780 


828 



3,044 



331.825 



(2) 



6 
9 

2 

12 

3 

32 



(18) 
(25) 
(39) 



3 
33 

36 



69 
49 

118 



69 
44 
(57) 
56 



2,081 



(8) 

(2) 

(34) 

23 

48 



27 



6,280 



WTES: 

(1) The figures appearing in these listings are based on the information provided by the various departments, Crown cor- 
porations and other instrumentalities. They include the numbers of seasonal, part-time and casual employees actually on 
strength at March 31, 1964 and March 31, 1965. For purposes of comparison these have been included in the figures shown 
for "Employees authorized". 

(2) Where no establishments have been authorized by the executive boards of certain Crown corporations or other instru- 
mentalities, the totals of the actual strength figures have been shown in the "Employees authorized" columns for 
purposes of comparison. 



226 



AUDITOR GENERAL'S REPORT 



APPENDIX 3 



SUMMARY OF EXPENDITURE BY STANDARD OBJECTS 
FOR THE FISCAL YEAR ENDED MARCH 31, 1965 

(with comparative figures for the preceding fiscal year) 

(in millions of dollars) 






1964-65 



1963-64 



Increase or 
decrease (— ) 



Civil salaries and wages 

Civilian allowances 

Pay and allowances, defence forces and Royal Canadian Mounted Police 

Professional and special services 

Travelling and removal expenses 

Freight, express and cartage 

Postage 

Telephone, telegrams and other communication services 

Publication of departmental reports and other material 

Exhibits, advertising, films, broadcasting and displays 

Office stationery, supplies, equipment and furnishings 

Materials and supplies 

Buildings and works, including land — 

Construction or acquisition 

Repairs and upkeep 

Rentals 

Equipment — 

Construction or acquisition 

Repairs and upkeep 

Rentals 

Municipal or public utility services 

Contributions, grants, subsidies, etc., not included elsewhere 

Pensions, superannuation and other benefits 

All other expenditures (other than special categories) 

Interest on public debt, etc 

Subsidies and special payments to the provinces 

Family allowance payments 

Youth allowance payments 

Old age assistance, blind persons and disabled persons allowances and unemploy 

ment assistance 

Veterans' disability pensions, etc 

Other payments to veterans and dependents 

Government's contribution to the Unemployment Insurance Fund 

Hospital insurance and general health grants , 

Trans-Canada Highway contributions 

Movement of mail by land, air and water 

Deficits — Government-owned enterprises 

Less: Expenditure recovered 

Net total expenditure 



951.8 
18.8 

606.9 
99.7 
67.1 
10.0 
7.1 
39.6 
11.2 
18.0 
27.6 

177.3 

244.6 
66.9 
19.9 

283.4 

156.5 

6.3 

77.1 
838.3 
176.0 
196.9 
1,051.3 
358.4 
545.8 

26.8 

181.5 

180.3 

104.4 

62.2 

490.6 

76.1 

68.7 

54.0 



7,301.1 
82.8 



908.3 
17.9 

613.0 
97.0 
63.1 
10.9 
5.9 
36.2 
9.7 
14.1 
27.0 

179.8 

210.4 
62.1 
17.2 

300.3 
161.3 
6.4 
70.3 
860.6 
226.1 
144.9 
993.7 
254.3 
538.3 



171.8 
173.2 
94.3 
59.3 
445.2 
39.2 
65.5 
55.2 



6,932.5 
60.1 



43.5 

.9 

-6.1 

2.7 

4.0 

-.9 

1.2 

3.4 

1.5 

3.9 

.6 

-2.5 

34.2 
4.8 

2.7 

-16.9 

-4.8 

-.1 

6.8 

-22.3 

-50.1 

52.0 

57.6 

104.1 

7.5 

26.8 

9.7 

7.1 
10.1 

2.9 
45.4 
36.9 

3.2 
-1.2 



368.6 
22.7 



8 7,218.3 



S 6,872.4 



$ 345.9 



EXHIBITS 

(as published in the Public Accounts) 

Statement of Expenditure and Revenue for the fiscal year ended March 31, 1965 

(with comparative figures for the preceding fiscal year) Exhibit 1 

Statement of Assets and Liabilities as at March 31, 1965 (with comparative figures 

as at March 31, 1964) Exhibit 2 

Summary of Appropriations, Expenditures and Unexpended Balances by Depart- 
ments for the fiscal year ended March 31, 1965 Exhibit 3 

1 
Summary of Revenue by Main Classifications and Departments for the fiscal year 

ended March 31, 1965 Exhibit 4 



228 AUDITOR GENERAL'S REPORT 



THE GOVERNMENT 

STATEMENT OF EXPENDITURE AND REVENUE FOR 

(with comparative figures for 
EXPENDITURE 

Fiscal year ended 
March 31, 1965 March 31, 1964 



Agriculture $ 165,723,844 $ 225,681,474 

Atlantic Development Board 4,294, 152 196,331 

Atomic Energy 46,564,793 45,955,220 

Auditor General's Office 1,589,889 1,258,359 

Board of Broadcast Governors 367, 645 341 , 849 

Canadian Broadcasting Corporation 87, 969, 198 87, 575, 697 

Central Mortgage and Housing Corporation 14,952,238 13,469,874 

Office of the Chief Electoral Officer 578, 175 11,875,892 

Citizenship and Immigration 82,357,670 71,545,372 

Civil Service Commission 6,226,358 5,224,776 

Defence Production 24, 146,395 22,559,354 

Economic Council of Canada 833,873 164,824 

Emergency Measures Organization 7,653,868 6,942,249 

External Affairs 131, 186,586 97,022,596 

Finance — 

Public debt charges 1,051, 290, 596 993, 729, 375 

Fiscal, tax-sharing, subsidy and other payments to provinces 358,357,022 254,330,006 

Other expenditure 178,427, 749 158,375, 231 

1,688,075,367 1,406, 434, 61S 

Fisheries 25,593,261 23,716,314 

Forestry 49, 754, 438 41, 815, 947 

Governor General and Lieutenant-Governors 648, 703 524, 159 

Industry 23,788,581 19,701,651 

Insurance 1 , 445, 861 1 , 435, 005 

Justice 53,529,441 40,995,992 

Labour 283,724,837 280,383,807 

Legislation 14, 214,867 12,912,533 

Mines and Technical Survevs 75,237,766 67,759,325 

National Capital Commission 10,354,431 12, 157,998 

National Defence — 

Royal Canadian Navy 272,532,495 297,972,475 

Canadian Army 433,551,506 454,465,501 

Royal Canadian Air Force 656,033,636 700,847,349 

Defence research and development 54,531,462 46,053,342 

Other expenditure 118,985,598 184,132,336 

1,685,634,697 1,683,471,008 

National Film Board 6,353,633 5,743,931 

National Gallery 1,303,734 1,067,949 

National Health and Welfare — 

Family allowances 545, 775, 231 538, 312, 223 

Other expenditure 751,811,068 665,542,374 

1,897,586,299 I, SOS, 85 4, 597 

National Research Council, including the Medical Research Council 56, 641 , 725 47, 259, 773 

National Revenue 86,908,544 82,995,521 

Northern Affairs and National Resources 80,894,715 77,334,019 

Post Office 210,458, 702 206,894,516 

Privy Council 4, 568, 571 2, 940, 181 

Public Archives and National Library 1 , 507, 268 1, 112, 723 

Public Printing and Stationery 2, 732, 686 2, 147, 045 

Public Works 224, 510, 352 154, 842,706 

Office of the Representation Commissioner 224,521 37,006 

Royal Canadian Mounted Police 76,198,876 66,899,479 

Secretary of State 21,909,881 7,568,044 

Trade and Commerce 90,042,850 73,584,061 

Transport 466,947,594 423,257,874 

Veterans Affairs — 

Pensions 180,326, 163 173, 164,513 

Other expenditure 172,711,504 160,575,368 

S5S, 087, 667 333, 7S9.881 

Total expenditure 7,218,274,552 6,872,401,519 

Budgetary deficit -37,964,765 -619, 197,480 



7,180,309,787 6,253,204,039 



H. R. BALLS, R. B. BRYCE, 

Comptroller of the Treasury. Deputy Minister of Finance. 



AUDITOR GENERAL'S REPORT 229 

EXHIBIT 1 
OF CANADA 

THE FISCAL YEAR ENDED MARCH 31, 1965 
the preceding fiscal year) 

REVENUE 

Fiscal year ended 
March 31, 1965 March 31, 1964 



Tax revenues — 
Income tax — 

Personal* 1 ' $2,103,281,916 $1,865,073,635 

Corporation") 1,523,814,601 1,258,957,490 

On dividends, interest, etc., going abroad 143,717,945 124,499,621 

Excise taxes — 

Sales'" 1,204,609,935 946,054,797 

Other 269,082,084 273,415,444 

Customs import duties 622, 101,883 581,441,461 

Excise duties 411 ,402, 145 393,326, 182 

Estate tax< 2 > 88, 625, 641 90, 671 , 283 

Miscellaneous 140, 100 91 , 869 

6,366,776,250 5,533,581,782 

Non-tax revenues — 

Return on investments 422, 693,741 366,412,592 

Post Office— net postal revenue 230,435,714 200,717, 142 

Refunds of previous years' expenditure 20,545,944 26,839,307 

Services and service fees 60, 924, 531 51 , 321 , 056 

Proceeds from sales 24, 250, 122 28, 444, 672 

Privileges, licences and permits 30,824, 939 27, 172, 568 

Bullion and coinage 12, 298, 922 9, 717 , 080 

Premium, discount and exchange 232,234 

Miscellaneous 11 , 559, 624 8, 815, 606 

813,633,537 719,672,257 



("Excluding tax credited to the old age security fund — 

1964-65 1963-64 



Personal income tax 431,900,000 302,600,000 

Corporation income tax 145,250,000 115,750,000 

Salestax 383,151,254 331,760,067 

< 2) Includes duties levied under the Dominion Succession Duty Act. 



= 



Total revenue 7, 180,309,787 6,253,204,039 



Auditor General's Certificate 
I The above Statement has been examined in accordance with the provisions of the Financial Administration Act. I have 
ibtained all the information and explanations I have required and, subject to the comments in my report to the House of Com- 
nons, I certify that the Statement is in agreement with the accounts maintained by the Department of Finance and that, in 
ny opinion, it exhibits a correct view of the expenditures and revenues of Canada for the year ended March 31, 1965. 



A. M. HENDERSON, 
Auditor General. 



230 



AUDITOR GENERAL'S REPORT 



THE GOVERNMENT 



STATEMENT OF ASSETS AND 
(with comparative figures 



ASSETS 



March 31, 1965 



March 31, 1964 



Net increase 
or decrease ( — ) 
during 1964-65 



(a) Cash, schedule A, page 9 $ 850, 282, 135 

(6) Departmental working capital advances and revolving 

funds, schedule B, page 9 134, 150,957 

(c) Securities held for the securities investment account at 

amortized cost 57, 119, 872 

(d) Other current assets, schedule C, page 11 29, 134,994 

1,070,687,968 

2. Advances to the exchange fund account — (value of investments 

from advances on basis of official parity rate March 31, 
1965, $2,653,406,754; official parity rate March 31, 1964, 
$2,631,200,188) 2, 621, 000, 000 

3. Investments in special United States of America securities — 

Columbia River Treaty 219, 479, 161 

4. Sinking fund and other investments held for retirement of un- 

matured debt, schedule D, page 11 5,441, 198 

5. Loans to, and investments in, Crown corporations, schedule E, 

page 11 4, 996, 301, 176 

6. Loans to national governments, schedule F, page 13 1 , 206, 576, 551 

7. Other loans and investments, schedule G, page 14 — 

(a) Subscriptions to capital of, and working capital advances 

and loans to, international organizations 709, 753, 537 

(b) Loans to provincial governments 98,435,806 

(c) Veterans land act advances (less reserve for conditional 

benefits) 231, 322, 169 

(d) Miscellaneous 99,869,916 

1,139, 381, 428 

8. Securities held in trust, schedule H, page 17 53,059,934 

9. Deferred charges — 

(a) Unamortized portions of actuarial deficiencies — 

Canadian forces superannuation account 53,761,600 

Public service superannuation account 39,920,800 

Royal Canadian Mounted Police superannuation 

account 4, 153, 600 

(6) Unamortized loan flotation costs, appendix No. 7, Section 9, 

page 15 110,749,442 

208,586,442 

10. Suspense accounts, schedule I, page 18 

11. Capital assets 1 

12. Inactive loans and investments, schedule J, page 18 94,824,381 

Total recorded assets 11, 615, 337, 230 

13. Less: Reserve for losses on realization of assets —546, 384, 065 

Net recorded assets 11,068,953, 165 

14. Net debt, represented by excess of liabilities over net recorded 

assets, schedule K, page 18 15,504,472,544 



$ 984,642,872 $ -134,360,737 
168,806,488 -34,655,531 



99,859,788 

33,484,613 

1,286,793,761 


-42,739,916 

-4,349,619 

-216,105,803 


2,601,000,000 


20,000,000 




219,479,161 




5,441,198 


4,584,194,507 


412,106,669 


1,195,684,799 


10,891,752 


702,130,003 
113,651,578 


7,623,534 
-15,215,772 


216,970,307 

165,064,212 

1,197,816,100 


14,351,862 
-65,194,296 

-68,434,672 


38,881,823 


14,178,111 


276,661,000 


53,761,600 
-236,740,200 




4,153,600 


123,699,586 
400,360,686 


-12,950,144 
-191,775,144 


141,392 

1 

94,824,381 


-141,392 





26,573,425,709 



11,399,697,350 

-546,384,065 

10,853,313,285 

15,070,149,452 
25,923,462,737 



215,639,880 



215,639,880 

434,323,092 
649,962,972' 



The notes appearing on page 6 are an integral part of this Statement of Assets and Liabilities. 



H. R. BALLS, 

Comptroller of the Treasury, 



R. B. BRYCE, 

Deputy Minister of Finance. 



(The schedules and the appendix referred to in the above Statement, and the pages referred to 
in the two notes, are to be found in the Public Accounts, Section 7 of Volume I) 






AUDITOR GENERAL'S REPORT 



231 
EXHIBIT 2 



OF CANADA 

LIABILITIES AS AT MARCH 31, 1965 
as at March 31, 1964) 



LIABILITIES 



March 31, 19G5 



March 31, 1964 



Net increase 
or decrease (— ) 
during 1964-65 



15. Current and demand liabilities, schedule L, page 19 — 

(a) Outstanding treasury cheques $ 315,077,233 

(b) Accounts payable (that portion paid in April of the next 

following fiscal year) 363,925,315 

(c) Non-interest-bearing notes payable to the international 
monetary fund and the international development associa- 
tion 367,897,531 

(d) Matured debt outstanding 19, 140, 916 

(e) Interest due and outstanding 102,034,032 

(/) Interest accrued 231, 173,522 

(g) Other current liabilities 33,367,648 

1,432,616,197 

16. Deposit and trust accounts, schedule M, page 21 272,311,590 

17. Annuity, insurance and pension accounts, schedule N, page 25. . 5,675,840,853 

18. Undisbursed balances of appropriations to special accounts, 

schedule O, page 26 95, 702, 607 

19. Deferred credits, schedule P, page 26 113,208,312 

20. Suspense accounts, schedule Q, page 26 5,531,971 

21. Unmatured debt, schedule R, page 28 — 

(a) Bonds 16,838,214, 179 

(6) Treasury bills 2, 140, 000, 000 

18,978,814,179 



319,625,031 
342,673,020 

586,996,025 
26,820,208 
91,893,490 

215,973,372 

35,710,909 

1,619,692,055 

196,454,123 

5,131,053,811 

111,601,270 

119,446,821 

5,117,628 



16,510,097,029 
2,230,000,000 
18,740,097,029 



-4,547,798 
21,252,295 

-219,098,494 

-7,679,292 

10,140,542 

15,200,150 

-2,343,261 

-187,075,858 

75,857,467 

544,787,042 

-15,898,663 

-6,238,509 

414,343 



328,117,150 
-90,000,000 
238,117,160 



Note: 



Total liabilities. 



26,573,425,709 



25,923,462,737 



649,962,972 



Auditor General's Certificate 

The above Statement has been examined in accordance with the provisions of the Financial Administration Act. I have 
obtained all the information and explanations I have required and, subject to the comments in my report to the House of Com- 
mons, I certify that the Statement is in agreement with the accounts maintained by the Department of Finance and that, in 
my opinion, it exhibits a correct view of the financial position of Canada as at March 31, 1965. 



A.M. 



HENDERSON, 
Auditor General. 



232 



AUDITOR GENERAL'S REPORT 






EXHIBIT 3 



SILMMARY OF APPROPRIATIONS, EXPENDITURES AND UNEXPENDED BALANCES 
BY DEPARTMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1965 



Section 

(Volume 

II) 



Department 



Appropriations 



Expenditures 



Unexpended Balances 



Lapsed 



Carried 
forward' 1 ) 



1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

29 

30 

31 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 



43 



Agriculture 

Atlantic Development Board 

Atomic Energy 

Auditor General's Office 

Board of Broadcast Governors 

Canadian Broadcasting Corporation 

Central Mortgage and Housing Corporation 

Office of the Chief Electoral Officer 

Citizenship and Immigration 

Civil Service Commission 

Defence Production 

Economic Council of Canada 

Emergency Measures Organization 

External Affairs 

Finance 

Fisheries 

Forestry 

Governor General and Lieutenant-Governors 

Industry 

Insurance 

Justice 

Labour 

Legislation 

Mines and Technical Surveys 

National Capital Commission 

National Defence 

National Film Board 

National Gallery of Canada 

National Health and Welfare 

National Research Council, including the Medical 

Research Council 

National Revenue 

Northern Affairs and National Resources 

Post Office 

Privy Council 

Public Archives and National Library 

Public Printing and Stationery 

Public Works 

Office of the Representation Commissioner 

Royal Canadian Mounted Police 

Secretary of State 

Trade and Commerce 

Transport 

Canadian Maritime Commission 

National Harbours Board 

Veterans Affairs 



168,791 

4,356 

46,583 

1,595 

390 

88,000 

14,962 

588 

83,638 

6,399 

25,585 

885 

10,296 

135,743 

,598,518 

27,678 

53,541 

678 

24,654 

1,462 

56,834 

371,958 

14,301 

78,027 

10,463 

,546,751 

6,353 

1,322 

,302,144 

58,360 

89,670 

94,086 

211,904 

4,875 

1,567 

2,954 

227,547 

224 

77,316 

22,333 

91,688 

438,599 

41,399 

8,853 

358,015 



484 
509 
500 
500 
300 
000 
564 
364 
328 
975 
190 
920 
000 
952 
683 
605 
348 
567 
100 
446 
121 
225 
317 
496 
001 
222 
700 
700 
072 

901 
744 
315 
673 
885 
800 
600 
188 
521 
764 
154 
507 
309 
982 
301 
684 



165 

4 

46 

1 

87 
14 

82 

6 

24 

7 
131 

1,588 
25 
49 

23 

1 

53 

283 

14 

75 

10 

1,535 

6 

1 

1,297 



$ 

723,844 
294,152 
564,793 
589,889 
367,645 
969,198 
952,238 
578,175 
357,670 
226,358 
146,395 
833,873 
653,868 
186,586 
075,367 
593,261 
754,438 
648,703 
788,581 
445,861 
529,441 
,724,837 
214,867 
237,766 
354,431 
634,697 
353,633 
,303,734 
,586,299 



56,641,725 

86,908,544 

80,894,715 

210,458,702 

4,568,571 

1,507,268 

2,732,686 

224,510,352 

224,521 

76,198,876 

21,909,881 

90,042,850 

418,735,575 

40,635,156 

7,576,863 

353,037,667 



3,067,640 

62,357 

18,707 

5,611 

22,655 

30,802 

10,326 

10,189 

1,280,658 

173,617 

1,438,795 

52,047 

2,642,132 

4,557,366 

10,443,316 

2,085,344 

3,786,910 

29,864 

865,519 

16,585 

3,304,680 

46,160,819 

86,450 

2,789,730 

108,570 

11,116,525 

67 

18,966 

4,557,773 

1,719,176 

2,762,200 

13,191,600 

1,445,971 

307,314 

60,532 

221,914 

3,036,836 

1,117,888 
423,273 

1,645,657 

19,863,734 

764,826 

1,276,438 

4,978,017 



< 4 >7,411,906,517 



7,218,274,552 



151,559,396 



42,072,569 



■ 



42,072,569 



("Available for expenditure in 1965-66. 

< 2 > Includes $54,913,000 carried forward from 1963-64 appropriations. 
< 3 >Includes $225,000 carried forward from 1963-64 appropriations. 

<4) In addition, parts of appropriations in respect of the following departments and expenditures in similar amounts were 
transferred to "Other loans and investments", as follows: Agriculture $4,332,269 and National Health and Welfare $2,250. 

H. R. BALLS, 

Comptroller of the Treasury. 

Auditor General's Certificate 

The accounts relating to the expenditures as set forth in the above Statement have been examined under my direction and, 
subject to the comments in my report to the House of Commons, I certify that, in my opinion, the Statement gives a correct 
summary for the year ended March 31, 1965. 

A. M. HENDERSON, 
Auditor General. 

(The sections referred to in the above Summary are those in the Public Accounts, Volume II) 



AUDITOR GENERAL'S REPORT 



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